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We all want to invest in our children’s futures, but when it comes to knowing the best way to go about it, there are so many options available to choose from it can become a bit of a minefield.
This guest post from Jim at Money Blog Scotland talks us through the best savings accounts for children and what we should be looking for.
It’s can be expensive raising children, and it takes up a lot of your time. In fact, nearly all of it!
So it’s no wonder that parents can procrastinate when it comes to saving for a child’s future.
And when you don’t know all the facts, financial services can seem a very daunting prospect.
Child Trust Funds
When we had our first two children, things were slightly easier.
The government then had a ready-made account for your newborn. What’s more, they kicked off your child’s savings journey with a generous £250 deposit. With another £250 gift planned for when your child turned seven.
This was called a Child Trust Fund. Unfortunately by the time my two eldest kids had reached seven, the plans had been abolished and we didn’t see a £250 payment on either of their seventh birthdays.
By the time our third child arrived, Child Trust Funds were no longer on the table.
They had by then been replaced by Junior ISAs. A kiddie version of adult ISAs (which stand for Individual Savings Account).
And whilst Junior ISAs are just as good, if not better than Child Trust Funds, there’s no big incentive for parents to open these accounts. That is the government aren’t throwing £250 at kids any more. Shame.
With the incentive lessened, the dizzying array of providers offering JISAs must be hard to wade through.
And once you’ve decided on a provider, do you go for a cash JISA or a Stocks and Shares JISA (also called an Investment JISA).
No wonder parents put it off!
But that’s where they’re losing out.
Time Is Money
Broadly speaking, if your child is newly-born, you have 18 years of growth potential for their plan to grow.
With this sort of time frame at your disposal, a Stocks and Shares Junior ISA can offer more growth potential than a Cash ISA at the current interest rates available (at the time of writing, December 2019). And they don’t look like going up any time soon.
So what to look for in a Stocks and Shares JISA?
Interest rates are not a consideration when taking out an investment. The growth of your child’s plan is dependent on the performance of the funds in which the Junior ISA plan is invested.
And while you can’t predict the future, and there is no truer statement than the investment vendors mantra that past performance is not a guide to future performance, there is one thing you can control: the charges on your plan. Also bear in mind that investments can go down as well as up and you could get back less than you put in.
Keep a sharp eye out for the charges your project is levying for your plan. In an eighteen year investment, even a few points of a per cent can make a huge difference to the final sum your child will get their hands on at the age of 18. Want to try it out for yourself? Have a play around with this Junior ISA calculator.
Try out different regular payments and lump-sum amounts to see how charges can affect a child’s savings plan over a lengthy period.
Where to find details of charges
The charges will be listed in the Key Investor Information Document (KIID) which you should read as part of the signup process.
It’s usually in PDF format .
Look too daunting to read all the way through? Try opening the PDF and hitting ctrl F on your keyboard to search the document. Search for the word ‘charges’ and you should find the plan charges listed.
So with a bit of basic know-how, hopefully searching for a plan for your child’s savings might not be as scary.
*No advice has been provided here. I am not a financial adviser. If you are thinking of starting an investment, you can find details of local, qualified financial advisers at unbiased.co.uk
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