A beginner’s guide to saving for your children’s future
We all want to give our children the best start in life. That wish naturally focuses on their well-being. We also hope they will successfully manage their money and make smart financial choices. Much of this can be down to what we teach them about money from an early age.
Another way to give your child a good start is to save for their future. But is it worth saving money for your child early on? What options are there, and how much should you save?
Why should I save for my children’s future?
How much should I save for my children?
Children’s savings accounts and junior cash ISAs
What are Junior Stocks & Shares ISAs
Teaching your children about money now
Why should I save for my children’s future?
Saving money for your child has practical benefits and uses in the long term. It can contribute in many ways to their future, such as help pay for university costs or other studies. It could also get them on the road when the time comes to learn how to drive, contributing to the price of driving lessons or a car. Deposits for houses, the cost of weddings and travel bills are also made easier to achieve later in life if there is a starting point of savings. When the money becomes available, your children will appreciate it took many years to grow to that amount - that money is easy to spend, but hard to save.
How much should I save for my children?
With the cost of living crisis sending costs soaring, we know it’s not easy to save right now. By saving little and often, over time it will build up. Starting to save as early as possible in your child’s life, however small, is more important than focusing on a fixed amount. You might be able to save a higher amount, later down the line.
A lot can be saved over time, for example £50 a month for 16 years will add up to £9,600. This doesn't include any interest that will be paid. You may be able to pay in more money, such as gifts for birthdays or holidays. So it's easy to see how it can build up over time.
Children’s savings accounts and junior cash ISAs
There is a wide range of children’s savings accounts on the market from many different banks. Some of them are for adults to save for their children regularly, and others allow older children to participate in saving with parental support, such as prepaid cards. To find an account that best fits their needs have a look at our guide on choosing a bank account for your family.
So, what is a junior ISA? A junior cash ISA (also known as a Jisa) is a permanently tax-free savings account for children under 18. Parents, relatives, and friends can put in up to £9,000 per tax year (2023/24), which is the junior ISA allowance. Withdrawals cannot be made until the child turns 18, and the account then becomes an adult ISA automatically in their name. Junior ISAs are an option if you know you won’t need to make any withdrawals. There is also less risk compared to investments such as stocks and shares ISAs - more on that in the next section.
Most banks offer ISA accounts, so it’s good to shop around to find the best junior ISA rates. At the time of writing, Halifax has a junior ISA with an interest rate of 3.20 per cent, and Tesco Bank had one at 3.30 per cent. We also found Coventry Building society had one at 4.15 per cent, and Skipton building society had a rate of 4.00 percent. If you still need to decide which type of savings account to go for, we take a look at the difference between an ISA and a regular savings account in our guide on comparing savings accounts.
Important points about a Junior ISA
- You can only have one junior ISA per person.
- You cannot withdraw the money from a junior ISA until this changes to a regular ISA once your child turns 18.
- If you want to move to another bank, you must complete an ISA transfer request.
- The annual allowance is per tax year, so from 6th April that year to 5th April the following year.
- Most ISA interest rates are not fixed so can go up or down. The bank or building society should inform you in writing in advance of the change so you can decide what to do.
What are Junior Stocks & Shares ISAs?
With Junior Stocks & Shares ISAs, the return on your money will change depending on the performance of the stocks and shares you choose to invest in through the ISA. Just like a junior cash ISA, the money you put in is locked away until the child turns 18. However, it is important to note that the value of your investment may go down as well as up, there is an element of risk, as with all stocks and shares.
It is recommended to speak with a financial advisor if you are considering using a Junior Stocks & Shares ISA, to fully understand the different risk levels and investments you can choose. Some families choose to split their savings across junior cash ISAs and Junior Stocks & Shares ISAs to reduce risk and take advantage of both options.
Note: You are allowed to have one cash ISA and one stocks and shares ISA per child.
Teaching your children about money now
ISAs, whether stocks and shares or cash, can be hard to get your head around. There are more rules and restrictions on your money than with an instant access account, which is why it’s vital to understand these before you open an account.
If you’re looking for financial education opportunities for the kids, you could consider getting one of the many prepaid cards for kids on the market. These are great for involving them in how their pocket money is spent, and teaching them the value of money. For very young children, using a piggy bank is still an excellent way to get them to understand the basics how money works. The subject is increasingly popular, with more parents than ever searching for advice on 16-year-olds bank accounts on the MustCompare website.
Saving any amount in the current economic climate can be difficult, we’ve put together a guide to help you improve your finances if you’re finding times tough. If you’ve found this article useful, take a look at our expert guide on teaching your child about money for further tips.