A few good ways to save money for children

Listed below are some good ways with which you can start saving money for your kids.

12:17 27 November 2013

Around Christmas time, friends and family may experience a renewed interest in providing for their children. Now what is the best way to do that?

• Junior ISA

Junior ISAs are similar but have more restrictions than adult savings accounts. They are tax free, and up to £3,720 can be paid into them per year.

However, the restrictions in place for Junior ISA’s can cause problems. Whatever you might want to use the money for, even for the child’s education, you cannot touch it until they turn 18 excluding a few cases where the youngster is gravely ill. We recommend creating an account that can be accessed. A junior account turns into an adult ISA once the child turns 18.

• Child Savings Account

These work in the same way as adult accounts and allow you to use the money to benefit your child. Child savings can take the form of an easy access account or a regular saver. You will have to pay tax on the interest even though children are not usually liable. However, kids are entitled to an allowance (tax-free) of £9,440 per year and you can fill out an HMRC form so that they do not pay tax unnecessarily.

• Your Own ISA

If you would like to save for a child but retain control, put extra money into your own ISA. That way, the money can only be spent on things you approve, such as university fees.

One drawback is that you will not be able to dodge as many taxes using this option. Of late, a few savings accounts are offering modest interest 2%-3% at most, thanks to the low base rate at present.

• The Piggy Bank

Literally. Don’t underestimate the importance of helping little ones develop good saving habits in terms they can understand. They don’t just need money; they need to know how to use it.