Many parents opening savings accounts for their children want to set up some sort of fund that will yield some financial reward. But this is not the only factor that is important because teaching children the importance of saving and how to handle money is also part of the process.
Low Risk Savings Accounts
If you look at savings and investments for children, they basically fall into two general categories. The first being savings and deposit accounts which entitle children to have easy access to any funds themselves as early as the age of eight. This type of account is ideal as it teaches children to save for specific items they might want to have and it also educates them on how to run an account through the experience they get from managing it.
The second are long-term investments and with this type of account, access to the funds is usually restricted until a child reaches a certain age, normally this is 18. This type of long-term account is set up so that there is a lump sum available to the child at the end of the agreed savings term. They are particularly useful in as much as the lump sum received can be used for further education, the purchase of a first car as well as other things. One thing to remember is that all these savings accounts and investments will attract tax.
Children’s Bonus Bonds
One low risk or risk-free option is to look at Children’s Bonus Bonds. These are available through National Savings & Investments (NS&I) which is a government backed agency. The Treasury guarantees that all deposits are 100% safe. These bonds have fixed rate, tax-free interest for five years and at the end of the full term a bonus is paid out to the saver. These are guaranteed, so you know exactly where you stand at all times. Unfortunately Children’s Bonus Bonds pay low rates of interest and this falls even further in you don’t invest the money for the full five years.
Junior Isas are worth considering but you have to remember that the funds you have saved may not be worth as much as you saved because they do not keep up with CPI, the Consumer Price Index. On top of this there is no access to the funds until the end of the term.
What About High Risk Savings Accounts & Investments?
The simple fact is that higher risk savings will outperform lower risk ones. But they are set in place for a longer-term which does mean the risk is spread over this period of time. Direct holding of share is one of the high risk investment options that is not recommended unless it forms part of a mixed portfolio. The investment involved is a substantial amount of money and therefore not really suitable for children’s savings.
For medium to longer term investments, you may want to look at collective funds which include investment bonds, unit trusts and investment trusts. The yield is better over the long term and these funds can be held for children. They are not however, the best performing funds available on the market.
Anyone seeking to invest in higher risk savings accounts and investments for their children would be wise to seek some expert financial advice in the matter. This does cost money, but at the end of the day it is money well spent as the advice you receive will mean you are making informed decisions when it comes to choosing the right type of savings or investment for your children’s future.