Adult money habits are formed by age seven.
Parents and grandparents can help to encourage children to save early to create good money habits and afford special items.
Over time the interest earned, even on small sums, can add up to create the deposit for a car or flat, or ensure a child’s future financial security.
There are many different ways to contribute to a child’s financial future including savings, premium bonds, investments and pensions.
To choose the right account, consider:
Remember, the account must also have the features you need.
Take a look at the Lloyds Bank Child Saver if you want to create an instant access savings account to save for your child aged 15 or under.
Similar to a Child Trust Fund, Junior ISAs usually have higher interest rates than child savings accounts, but only offer access to the money once a child turns 18.
You cannot have a Junior ISA as well as a Child Trust Fund. If you want, you can transfer the trust fund into a Junior ISA.
There are two types, a Junior Cash ISA and a Junior Stocks and Shares ISA.
A parent or legal guardian can open a Junior ISA for a child under 18, resident in the UK. If your child is aged 16-17, they can open the ISA themselves.
Parents, friends and family can save into a Junior ISA on a child’s behalf, as long as the total stays under the annual limit. For 2019-20, the annual limit for a Junior ISA is £4,368. All interest earned, investment growth and dividend income will be tax free.
It’s important to remember that at 18, the child will control the account. So it’s a good idea to ensure they manage it carefully.
Lloyds Bank Junior Cash ISA is a long-term, tax-free savings account. It can be opened by parents for just £1.00.
Junior Stocks and shares ISAs allow you to put a child’s savings into investments such as funds. These ISAs are generally riskier than cash ISAs. However, any profit earned is tax free and could create a higher total return on any money invested.
Premium Bonds are an investment product where you are entered into a monthly prize draw and can win money tax free, instead of earning interest or receiving a dividend. They are issued by National Savings and Investment (NS&I) and are backed by the government. You can buy them on behalf of your child or grandchild.
Any parent or legal guardian can set up a child pension. The child can access these savings when they reach the age of 55.
You can save up to £2,880 tax free in each tax year. The government then tops this up by 25 per cent, taking your yearly total to £3,600.
Any growth is tax free, so the sums invested can start to increase very quickly. The pension will automatically transfer to the child once they reach 18 so that they can add contributions themselves.
At an average growth rate of 8%, if you invest the maximum child pension amount over 3 years, totalling £8,640, which becomes £10,800 if you include the government top up, your child pension could be worth £582,000 over 50 years, with 25% as a tax-free lump sum.
You may already have a will in place but it’s a good idea to check that it covers the youngest members of your family.
Read our making a will article to help you make sure all your loved ones are covered.
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