Saving For Your Children

It is never too early to start planning for the future of your children; it is never too early to teach children the importance of saving and investing. With so many service providers today, how do you pick out the best savings and investment product for your child?  It is prudent to shop around to get products that offer the best rates.

You will be surprised at how much simple, periodic yet small savings turn into huge amounts when invested well. A savings account is also an excellent way to teach children about money and how it works. Let’s look at some of the options available to you today.

Junior Savings Accounts

A simple savings account for your child (which can also be referred to as a junior individual savings account) is one of the best options for planning for your child’s future. Most Junior ISAs offer a long term savings solution and tax free earnings designed to give a lump sum when the beneficiary turns 18 years.

There are two main types of Junior ISAs;

  • Cash JISA where the savings are held in cash and the interest earned is added as time goes by
  • Stocks and shares JISA where the savings are invested in equity markets aimed at obtaining a higher return by the time the term ends. The savings can also be invested in funds, bonds, equities or a mix of assets.

How Much Can a Parent Invest In a JISA?

There is an annual review of the maximum amounts a parent can invest in a JISA; the amount changes periodically so stay updated. In the tax year 2016/17, the maximum one can invest is £4,080 for each child. In the tax year 2017/18, the annual JISA allowance per child is £4,128. Any unused JISA allowance cannot be carried over into the subsequent years. Contributions are only allowed until the child turns 18 years.

Remember

Setting up a Junior Individual Savings Account does not mean directly investing in individual shares and stocks, which is quite risky. However, you are at liberty to set up investment funds and trusts, which are a selection of shares aimed at reflecting the portfolio’s mandate. Trusts and funds balance an investment portfolio, thereby reducing risks while raising the rate of returns.

Best Rated Junior Cash Individual Saving Accounts and Their Returns

We will look at the best rated cash JISAs in the market today. Keep in mind that these rates change as competition between service-providers stiffen. Therefore, stay updated.

JISA Service Provider JISA Interest Rate (%)
Halifax Kids Regular Saver 6
Barclays CR Saver 3.5
Dudley Building Society JES 3.5
Coventry Building Society 3.25
Newcastle Building Society (Little Saver) 3.02
Nottingham Building Society (Young Saver) 3
Tesco Bank 3
TSB 3
Danske Bank 3
Principality Building Society 3
Halifax Young Saver 3
Darlington BS 3
Skipton Building Society 3
HSBC Premier Mysavings 3
Nationwide 3
Santander 2.75
Leap Issue 2 2.72
Wesleyan Bank 2.75
Mansfield Building Society 2.55
Lloyds Bank 2.5

Before you get all excited about these returns, read the fine print. Be sure to pick the package that works best for your savings and investment goals. Some of the most important features to look at when shopping for a JISA are;

  • Rate of return on investment
  • Fund dealing charge
  • Where the savings are invested (equities, bonds, funds)
  • Annual charges
  • Maximum and minimum monthly savings
  • Annual platform charge

These pointers are in no way exhaustive of the factors to consider when shopping for the perfect JISA. Most service providers have adequately updated websites where you can get as much information about the products as you want. There are countless comparison sites as well, that will assist you in picking out the right JISA for your child.

Life Insurance as Investment Options

Life insurance policies are a vital part of any sound financial plan. It not only provides financial back up in case of an unfortunate event such as an accident, disability or loss of income, it also secures the family’s financial future in case of an untimely death.

Life insurance policies also act as an investment tool as well as a retirement solution. With a life insurance policy, you can build your wealth according to your financial goals and cater to other future expenses such as children’s education or acquiring new property.

Best Rated Life Insurance Plans

Insurance Product Maximum Cover Max Age for a New Cover (Years)
AA Life Insurance Unlimited 74
Aegon LI Unlimited 74
AIG Life Cover Unlimited 74
Aviva LI Unlimited 66
Fortify Life insurance £500,000 65
Legal and General Unlimited 74
Liverpool Victorial LI Unlimited 64
Old Mutual Wealth Life Cover £10,000,000 85
Royal London LI Unlimited 60
Scottish Widows LI £25,000,000 73
Exeter LI £3,000,000 80
VitalityLife LI £20,000,000 64
Zurich LI Unlimited 73

How Life Insurance Works

A life insurance policy is a plan that gives your loved ones a lump sum in the unfortunate incident of your demise.

What you will be required to do is pay a set premium every month until the end of your policy term. Every policy holder is eligible for a payout should death occur during the policy’s term. The life assurance policy is designed to pay out when you pass away.

When shopping around for the best life insurance policy, have these factors in mind.

  • The cover amount you need – this is the amount that is paid to your loved ones when you pass away
  • The cover length you desire – this is the period your cover lasts. If death occurs outside this period, your loved ones may not get a payout
  • The type of cover you want – could be a level cover that has constant payout or a reducing cover that decreases the payouts over time (usually cheaper)

Once you have determined the features of a cover that you want, you are in a better position to get the appropriate product. Be sure to shop around before you settle on any one service provider. Always take up a cover only with insurers regulated by Financial Conduct Authority.

NS&I Premium Bonds

These are investment plans that are offered by National Savings and Investments (NS&I). Unlike all other investment options where you earn regular dividends or interest, this products enters you into a monthly draw where you stand a chance to win a tax free prize of any amount from £25 to £1,000,000.

Premium bonds are available to anyone who is 16 years and older. However, any one can take up this bond on behalf of their children. A guardian is in charge of the bond until the child is 16 years old. Once the children in question turn 16, the bond together with all other prices won, can be cashed in.

Features of Premium Bonds

  • You will need a minimum of £100 to get it set up (or £50 if you have a regular payment plan)
  • The maximum holding level for the bond is £50,000
  • For every £1 you put into the bond, you get a chance to win a prize
  • You can buy the bonds for yourself or for any other person, including your child
  • You should be 16 years and older to set up a Premium Bond
  • Guaranteed security for all the money put into the bond
  • Returns are unlikely to beat the rate of inflation unless you win any of the monthly prizes up for grabs

The best thing about these bonds is that you can cash in your bond any time you want; you need not give a notice and you will not be penalized. Once you opt to cash in, you will have to wait for about 8 working days for the money to hit your account, unless you have planned to cash in after the next monthly draw is held.

All prizes worn in Premium Bond draws are tax free; the amount is not subject to Income and Capital Gains Tax of the UK.

Junior Self Invested Personal Pension

If you are looking for a long term plan for your child’s future, right up to their retirement, you can consider a child SIPP. This is a tax-efficient savings plan that is cashed in when your child reaches the state pension age.

Why Opt For Junior SIPP?

Apart from the fact that is a great way to contribute to your child’s future, there are a load of benefits for choosing Child SIPP as an investment option. Some of these benefits include the following:

  • The child should be below the age of 18 at the start of the SIPP
  • All investments of up to £3,600 in a year, per child, are automatically entitled to a 20% tax relief
  • All earnings from Child SIPP are not subject to income and capital gains taxes. However, keep in mind that tax rules may change in the course of time
  • Junior SIPP are covered by inheritance tax exemption
  • All amounts in a Child SIPP can only be cashed in when the beneficiary turns 55 (which will be reviewed to 57 years from 2028)

There are affordable minimum and maximum monthly contributions depending on the service provider. Be sure to confirm the terms and conditions before signing up. Shop around to get the best service provider. Most of these service providers allow you to quickly open an account online or via telephone.

Other Investment Options

Child Trust Funds as well as NS&I Child Bonds have been replaced by JISA.

NS&I Child Bonds are still available to customers who are 16 years and below who have maturing bonds. You will be allowed to cash in or renew after every 5 – year term. Customers who are above the age of 16 will be given the option to switch to another NS&I investment account or cash in their bond.

Active Child Trust Funds accounts will still be run until the beneficiary turns 18 when it can be cashed in. Funds held in CTF can be transferred into a JISA at will.