As parents, knowing that you are doing the best you can to ensure your child has a secure future is important. As part of this, it’s key to know the best ways to save for your little one, and the different options you have. Here, we'll run through five of the best methods to save for your children's future, and how to maximise your savings.
Open a Junior Savings Account
A Junior Savings Account is a great way to introduce your children to the world of money while securing their financial future. These accounts are specifically designed for children, typically offering higher interest rates than regular savings accounts. They tend to have instant access, so it’s the perfect place to store birthday and Christmas money gifted from relatives over the years, provided you want to keep this money accessible.
Saving money for your child in this way is great to give you a bit of flexibility in what to do with the money. If you want to dip into it, or let your little one make the decision to withdraw some money for a new bike or gaming console, it’s easy to do so. But, if you choose to leave it in and not touch it, the interest rates mean that the money saved can quickly accumulate over the years and provide a substantial nest egg.
However, if you know you’re looking to leave the money for longer-term savings, a Junior Savings Account might not be the best option. Some of the other options discussed here, like a Junior ISA, tend to offer higher interest rates when you sacrifice the instant-access.
When choosing a Junior Savings Account, consider factors such as interest rates, terms and conditions, and any associated fees. Many banks offer competitive options for Junior Savings Accounts, making it essential to shop around for the best deal that aligns with your long-term goals.
Start a Junior ISA
A Junior ISA is another popular and tax-efficient way to save for your children's future. Junior ISAs offer a range of investment options, including cash, stocks and shares, or a combination of both. The money put in a Junior ISA can’t be accessed until your child turns 18. Still, once they reach this age, they are in full control of the money. So, it’s important to make sure your child is money-savvy enough and can be trusted to not blow the entire value of the account once they turn 18.
When opening a Junior ISA, make sure to think about your risk tolerance and investment goals. If you're comfortable with a higher level of risk, a stocks and shares Junior ISA may offer greater potential returns over the long term. Alternatively, a cash Junior ISA provides a more stable option with guaranteed interest rates. Both allow for completely tax-free profits.
Consider Premium Bonds
Premium Bonds are a unique savings option offered by the government-backed National Savings and Investments (NS&I). As well as earning interest, Premium Bonds provide account holders with the chance to win tax-free prizes in a monthly prize draw with values between £25 and £1,000,000! While the returns are by no means guaranteed, the allure of potential winnings can make Premium Bonds an exciting and flexible savings option for your children.
It's important to note that the prize draw system means your investment may not grow consistently over time. However, the potential for a win could significantly impact your child's financial future, and can make it more enticing for them to show an interest in. For more information on premium bonds, head here.
Open a Regular Savings Account
In addition to specialised accounts like Junior Savings Accounts and Junior ISAs, consider opening a regular savings account for your child. These accounts typically have more flexible terms, less conditions, and can be a great option for teaching children the importance of saving regularly.
Regular savings accounts often offer competitive interest rates, allowing your child's money to grow steadily over time. You can even encourage your child to contribute a portion of their pocket money or any gifts they receive into this account regularly. This habit can be a great way to instil a sense of financial responsibility and discipline from an early age.
Set up a Pension Fund
We get it, retirement may seem like a distant concept for your children! But, starting a pension fund early can be a powerful way to secure their financial future longer term. Many banks offer Junior Self-Invested Personal Pensions (SIPPs) or similar products designed specifically for children.
Contributing to a pension fund for your child when they are young can take advantage of compounding interest, giving the potential for a significant fund by the time they reach retirement age. This long-term approach to savings demonstrates the importance of planning for the future and can set your child on a path to financial security, giving them more flexibility and one less thing to worry about throughout their working life.
How Much Should I Save For My Child's Future?
Determining how much to save for your children's future depends on your unique circumstances. Think about your financial responsibilities each month, your ‘emergency fund’ savings, and your financial goals for your children. Financial experts often recommend setting specific, measurable, achievable, relevant, and time-bound (SMART) goals to guide your savings plan.
Try to indemnify one or two specific financial goals, such as helping with the cost of higher education, buying a home, or starting a business. Once you’ve done this, determine a realistic timeline for achieving each goal. With a clear understanding of your financial goals and the associated costs, you can work backward to establish a monthly or yearly savings target.
If you aren’t in a position to dedicate an amount each month, or make a substantial contribution to your child’s savings, simply opening one of the accounts mentioned above and making a start is a great step. Consider simply transferring what you can into the account each month, and don’t be too hard on yourself if some months you simply don’t have any money left over for the savings.
The fact that you are taking steps towards your child’s financial future is an amazing starting point, and your child will thank you in years to come for what you’ve done to help them! If you’re looking for more advice on planning for the future, head here for why it’s so important for new parents to write a will.
