Saving for children

littlened

We have a 6 week old son, and want to start saving for his future. Our plan is to save £80 a month until he's 16, which would give us £15,500 roughly + interest.

Having looked at ISA accounts and bonds, the returns are not that great.

We currently have 21 year left on our mortgage, and have calculated that if we overpaid our mortgage each month by £80, we would be finished paying the mortgage when he's 15, and be able to save the mortgage payment for the next 3.5 year until he's 18 and a half, which would give us the same £15,500 we had originally planned. Then we would have a further 2.5 years of being able to save the mortgage payment to take us up to the date the mortgage would of originally been paid, to give us additional savings of £11,000.

It seems perfect, however this plan only works if we stay in this house for the duration. If we sell in say five years time, we would have to calculate how much we would of saved during those five years and deduct that from the sale of the house, take the money back and put it into a savings account, as we would probably start a fresh mortgage for say 20 years. At the end we'd still have the same £15,500 saved, but would have saved much less on mortgage.

Just wondering if anyone has any advice about doing this? Is it definitely something to consider? Or would a savings account be much less hassle and risk?

The idea of us being able to save an additional £11,000 just seems absolutely perfect.

As I suspect someone will ask, I am 33. We have £60k left on the mortgage of a house valued at around £120k, and we pay somewhere in the region of £370 a month on the mortgage at the minute.

We also have Another house which we rent out and pay interest only on. There's £42k left on that one, so we may also be able to do something similar on that. We are currently saving what we have left over after paying the mortgage, and plan to make a bulk payment off it once we have so much money in the bank. We could turn that mortgage back into a repayment one, using the £80 per month towards that. Although its another path to take, the savings are not as good.

atush

I am going to sit out the mtg thing at the moment, we'll get back to it.

The best way to save for children for periods of 10 yrs or more, is not into cash, but into equities. Did this for my own and it was the best decision I made for them.

xylophone

You could consider opening a JISA for your son.
https://www.gov.uk/junior-individual-savings-accounts/overview
If you have (or are prepared to open your own ISA) the Halifax is currently paying 6% on the JISA.http://www.halifax.co.uk/isas/

You can also hold stocks and shares in a JISA. You could opt for both cash and stocks and shares.

http://www.hl.co.uk/investment-services/junior-isa?theSource=PCJIG&Override=1&gclid=CK_BhNnHlbYCFcbKtAodeW8AHghttp://www.hl.co.uk/investment-services/junior-isa?theSource=PCJIG&Override=1&gclid=CK_BhNnHlbYCFcbKtAodeW8AHg

http://www.moneywise.co.uk/investing/investment-trusts/benefit-the-new-junior-isas-investment-trusts

You do need to remember though that he would have an absolute right to the money at the age of 18.

atush

Ok. I wrote a long missive and posted after sunday lunch lol but it disappeared as I waited too long lol.

you are forgetting what compounded interest (as opposed to just interest) will be after 16-18 years. it is interest on interest ion interest and soon mounts up- esp if reinvested dividends on equities. No way you could make all that up in 3.5 years after the mtg.

you have 2 mtgs for 2 properties. What other savings and investments do you have? Pensions? If none, you are in a perilous all your eggs in one basket situation.

Is the 80 per month, the only savings you can make? Or is it in addition to pensions?

What is the money you are saving for? University?

bugbyte_2

Hi, really interesting conundrum.

As you have said yourself, you may want to move, so while you set out your calculations based on nothing changing, in reality the chances are everything changes. You may, for example, earn twice as much in 16 years. Inflation may go through the roof, making your mortgage twice as expensive. You may get a wonderful investment opportunity that you can't turn down. You have no idea what exciting things are around the corner!

For me then, it has never been a case of saving £X amount, its been a case of manoeuvring my family's finances so we can support our kids between uni and settling down. So what to do?

At current, mortgages are cheap, so as long as you have a cheap deal, pump your spare cash into something that may give a better return like funds. If this changes, change strategy - do what you think will strengthen the family finances as circumstance dictates.

jimjames

Personally I'd be very wary about using the money to pay off your mortgage. As you say you don't know what might happen in the intervening years there could always be something more of a priority that crops up and needs the money like moving again.

At least if it is in a designated account that temptation should be less. I'd also agree with atush's comments. We have also used savings plans for our children and the returns have been very good so far.

counting_down_the_days...

I'm interested in this too. But one thing I would say, if you are saving for one child at the moment, what if another comes along?

We saved for our first child, fully intending on having more, but now we have decided to put all their money together as the first has significantly more as we couldn't afford to do the same for the second and probably a third.

We are seriously considering (actually I think we have decided) to put their money into solar panels for our roof. The cost is £5k, which they have and the return is valued at £25k over the next 20 years. My kids are 1 & 3 so this is fine.

We're slightly different from you though as we have no plans to move, ever! We had also thought about putting their money into our mortgage and then paying it back once the mortgage was paid off, however, I've managed to remortgage from 5.79% to 2.79% so happy that I can get roughly the same in savings for them.

I'm personally not keen on savings that gives the money automatically to the child. Who knows how my children will turn out. The last thing I want is my children having access to money that I have worked hard to save for years, and they blow the lot on a boy racer car or worse still, drugs. I also want to make sure that worse case scenario, I have access to that money, as it's something else to fall back on. Yes, it is their money, but you have to keep a roof over their heads & food on the table.

Good luck x

bigadaj

I'd check the returns on that solar panel investment if I were you, repayment of lump sums is typically eight to ten years, with a ten percent return after that. Most modern panels also haven't been in place for many years yet, so such things as reductions in efficiency and even panel failure are not clear cut at all.

littlened

atush wrote: »

Ok. I wrote a long missive and posted after sunday lunch lol but it disappeared as I waited too long lol.

you are forgetting what compounded interest (as opposed to just interest) will be after 16-18 years. it is interest on interest ion interest and soon mounts up- esp if reinvested dividends on equities. No way you could make all that up in 3.5 years after the mtg.

you have 2 mtgs for 2 properties. What other savings and investments do you have? Pensions? If none, you are in a perilous all your eggs in one basket situation.

Is the 80 per month, the only savings you can make? Or is it in addition to pensions?

What is the money you are saving for? University?

At the minute we have the two properties, no pensions, and have about £6k in savings or so.

The money we're saving is essentially the child benefit of £20 a week we get, which we don't really need. If we have a second child then we'll increase our saving to £143 per month.

In terms of overpaying the mortgage, this is how I'm looking at it. If we overpay by £80 per month, we'll pay the mortgage off 5 years and 5 month earlier and pay almost £9,000 less in interest.

We have 21 years left on the mortgage.

If we put the money in an ISA, in 15 years time we'd have roughly £16,500 @ 2% interest, and we'd still have over 5 years left on the mortgage, so would not longer be able to save any additional money as the child benefit will have stopped. If we offset the extra interest we'll have paid on the mortgage against the savings, then we'd be left with around £8,000.

If we overpay on the mortgage, when the child is 15 we'll be mortgage free and have paid £9k less in interest on it. We'll also have our mortgage payment free to save each month. If we save the mortgage payment in an ISA for three years, we would have around £13.5k saved by the time the child is 18, but at the same time have paid £9k less in interest. If we were to continue to save the mortgage payment until when the mortgage was originally meant to be finished, we'd have around £24k.

If we were to go on an have a second child, and overpaid the mortgage by £150, we'd save £13k in interest!!! and could potentially have saved £36k by the time the mortgage should have been paid off.

I can't find any savings account that would give us that kind of benefit?

Obviously, should we get a better rate on our mortgage in the future we'd benefit less, but on the other hand, should interest rates increase we'd save more.

Am I missing something? or is it really not such a good idea?

Mojisola

counting_down_the_days... wrote: »

I'm personally not keen on savings that gives the money automatically to the child. Who knows how my children will turn out.

The last thing I want is my children having access to money that I have worked hard to save for years, and they blow the lot on a boy racer car or worse still, drugs.

I also want to make sure that worse case scenario, I have access to that money, as it's something else to fall back on. Yes, it is their money, but you have to keep a roof over their heads & food on the table.

This is the problem with saving for children in their name!

atush

At the minute we have the two properties, no pensions, and have about £6k in savings or so.

The money we're saving is essentially the child benefit of £20 a week we get, which we don't really need. If we have a second child then we'll increase our saving to £143 per month.

In terms of overpaying the mortgage, this is how I'm looking at it. If we overpay by £80 per month, we'll pay the mortgage off 5 years and 5 month earlier and pay almost £9,000 less in interest.

We have 21 years left on the mortgage.

If we put the money in an ISA, in 15 years time we'd have roughly £16,500 @ 2% interest, and we'd still have over 5 years left on the mortgage, so would not longer be able to save any additional money as the child benefit will have stopped. If we offset the extra interest we'll have paid on the mortgage against the savings, then we'd be left with around £8,000.

Am I missing something? or is it really not such a good idea?

Sorry to say, you are missing quite a bit.

What do you intend to retire on? The state pension won't be enough.

You really need to address pensions, Join the one at work, if they don't have one now, they will have to soon. If you have not joined work pensions if available, you may have been putting free money down the drain.

Second, you are talking about saving into Cash ISAs at 2% for 15 years. This won't even match inflation much less beat it! You need to need to put money needed in more than 10 years into some sort of equity investments, not cash.

Is 80 all you can save? If so, look at your outgoings and see if you can reduce expenditure.

Save what you can into a pension, and a S&S isa.