There is a range of options for saving money for your children, each with its advantages and disadvantages.
Ordinary Savings Account
This type of instant-access flexible savings account is generally available from many banks and building societies.
It allows you or your child to deposit money into the account either by paying it in over the counter or setting up a standing order to transfer a regular amount into the savings account from your current account each week or month. An account can be opened with as little as £1 with no maximum.
The money is usually instantly accessible and sometimes a cash card is available to make withdrawals.
The interest rate, which is potentially taxable, tends to be variable and is normally lower than, for example, a fixed-rate bond because the money in the account can be taken out at any time.
A Junior ISA is a tax-free savings account that any child can have who is under the age of 18, resident in Britain and does not possess a Child Trust Fund.
A child is allowed to have a stocks and shares Junior ISA and a cash Junior ISA. There is a risk attached with the stocks and shares version, as the money is being invested in stock markets whose value can go down as well as up. There is no tax on any gains made. There is no risk to the capital in a cash Junior ISA and your child receives tax-free interest on the account.
£3,600 can be put in Junior ISAs each tax year and anybody can put money into one of these accounts, whether it is the child, parents, relatives or friends.
It is important to note that any funds held in a Junior ISA are owned by the child, who cannot withdraw the funds until they are 18 years of age. At 18, the child can make a decision as to what to do with the funds. If the child does not make a decision at age 18, the Junior ISA will be converted into an ordinary ISA.
The interest rate on the Junior ISA tends to be higher than that of an ordinary savings account as the money is tied up until the child reaches age 18.
There are several different types of bonds available from banks, building societies and the Post Office.
A lump sum of, for example, £500 can be placed into a bond that is then fixed for a period normally ranging from 1 to 5 years. The interest rate on a fixed-rate bond is set for the term of the bond and tends to be higher than that of an ordinary savings account, as you cannot have access to the funds until the bond matures unless a penalty is paid.
There are also other types of bonds such as premium bonds that can be purchased from the Post Office. Your child’s premium bonds would be entered into a monthly draw and if successful could win anything up to £1,000,000. There is no risk to the capital in the Premium Bond.
National Savings and Investments also have bonds and savings certificates available specifically for children.
Post by Sam who is a financial journalist who recommends that you visit http://www.moneysupermarket.com/savings/junior-isas/ for further information about children’s savings accounts.