In today’s ever-changing economic climate, teaching your child to save for the future has never been so important. There are a range of savings options available – from government incentive schemes to helpful mobile apps. In this article, we take a look at some useful ways to help your child to save.
1. Pocket Money app – help your child manage their money
There are a few mobile apps available to help your child manage their pocket money. We really like the goHenry Pocket Money app. Suitable for children aged between the ages 6 – 18, the app helps parents teach their child ways to save and spend their money. As well as being able to set rules and limits, you can also create tasks to incentivise children to earn more pocket money. We think the goHenry app is an excellent tool to help children learn the true value of money and the consequences of debt, especially as parents can keep a watchful eye on any spending.
2. Have you considered a Junior ISA?
A Junior ISA is a government-backed, tax-free savings scheme for children. Similar to standard ISAs, you can choose between cash or stocks and shares – or, you can split your allowance between the two. In the Autumn Budget, it was announced that the annual Junior ISA allowance will rise to £4,260 from April 2018 (the allowance is currently £4,128 for this tax year, 2017-18). The main benefit of a Junior ISA is the fact that your child can only access their money when they reach the age of 18. Therefore, this savings scheme is a useful and secure way to grow funds for university fees or their first house deposit. If you have children’s bonds or Child Trust Funds – please see our previous blog, Children’s savings: Investing for their future, as new applications for these schemes have now ceased.
Whether it’s best for you to choose a Junior Cash ISA or a Junior Stocks & Shares ISA will depend partly on how much risk you feel comfortable in taking, but also when the money might eventually be needed.
3. Premium bonds – yes, they still exist!
Some people consider premium bonds from National Savings & Investments (NS&I) to be an outdated way of saving. However, we think there’s still very much a place for them, including as a useful way to save safely for their children. You can buy bonds in your child’s name if they are aged under 16. Although the bonds don’t pay interest, every bond number is entered into a monthly draw, so there is a (small) chance of winning between £25 and £1m (tax-free), which is thought to be around 30,000 to one! With average winnings at that level, the returns are similar to what you’d expect in a savings account, but of course, there’s the chance that you might one day get the ‘big win’ and it’s a bit of fun as a result.
4. Children’s savings accounts
There is a range of different children’s savings accounts available. Some accounts allow you to add funds and withdraw money whenever you choose. If you are looking for an account with a higher rate of interest, the usual rule is that you would be expected to make monthly contributions and there may be limits on the number of withdrawals too. More restricted savings accounts require regular payments, so if you miss one (or ignore the withdrawal limit), this could cost you interest.
5. Income tax rules for children
Remember, tax rules do apply to children! The reason being is to avoid parents using their children’s savings as a way to off-set their own tax liabilities. However, as most children do not receive an income, they are able to save up to £17,500 without paying tax. If you go over this amount, then tax rules will apply. This includes the £5,000 starting savings allowance at 0% and the £1,000 personal savings allowance. There is a ‘£100 rule for parents’ whereby if savings given to a child by a parent or step-parent generates more than £100 a year in interest (not including grandparents, other family members or family friends), this will be taxed at the parent’s tax rate (basic, higher or additional). The tax-free personal allowance also applies to children (£11,500 during this tax year, 2017-18 and this increases to £11,800 for the next tax year, 2018-2019). For more information on children’s tax rules, please speak to one of our financial planning team.
6. Did you know that you can set up a pension for your child?
Yes, that’s right – you could consider taking out a pension on behalf of your child, and when they reach the age of 18, the pension will be under their control, so they can start making their own contributions too when the time is right. This can be a useful long-term approach to children’s savings. At present, you are allowed to contribute up to £2,880 each tax year (boosted to £3,600 including tax relief). If you would like to find out more, please get in touch, as our financial planners will be able to provide you with suitable pensions advice.
For more information on children’s savings, please read our previous blog, Children’s Savings: Investing for their future.
If you would like to create a suitable savings strategy for your child, please get in touch and speak to one of our financial planners. We will explore a range of different options to suit every situation.