Advice on savings for kids future

kinsae112

Newbie investor, seeking advice on where to invest monthly sums for children's future.


Our older daughter (now 5yrs) has the Child Mutual Trust Fund (only cos I got the literature in the bounty pack from hospital), but I don't know if this is the best Fund for her. I think I read that we cant move her out of this trust fund to another trust fund - and not to another investment vehicle.


We haven't set up anything for our 8-month son and I'd like to do so soon.


I'm confused with the maze of Trust Funds, Junior ISAs etc. Are there any knowledgeable forum members that can suggest best option for investing for our 8mth old son. As well as our 5yr old daughter who already has a Trust Fund.


For now, we can afford to set aside just £50 per month for each child, hopefully more in the future.


Thank you

bowlhead99

kinsae112 wrote: »

I think I read that we cant move her out of this trust fund to another trust fund - and not to another investment vehicle.

Not sure if you had a typo there, you *should* be able to move her out of that child trust fund into another child trust fund. However, you can't move her out to a Junior ISA, because the tax rules don't allow those types of investment to be interchangeable just yet.

As from the start of next tax year you would be able to transfer from child trust funds to Junior ISAs. That would probably allow you access to a wider range of more cost-competitive products because the JISA market is getting bigger and bigger while the CTF market is getting smaller and smaller and therefore has less competitive products.

We haven't set up anything for our 8-month son and I'd like to do so soon.

There's lots of choice out there. You can't use a CTF as he is born too late to be eligible, but that's fine because as mentioned they are a bit of an old fashioned product and a niche market that is shrinking. You would use a JISA which is the modern equivalent. You could then move the older one's CTF into the same product next year when the regulations allow you.

JISAs come in cash versions (like a savings account paying up to 3% or so) or S&S investment versions which are the right choice for long term growth to beat inflation over the long period that the money is at work.

You will find JISAs offered directly by investment fund managers like F&C or by investment platforms like Hargreaves Lansdown or Fidelity Fundsnetwork. Within the JISA you will get a choice of funds, sometimes an extremely wide choice. You just want something that invests in a wide range of shares (not just the UK stockmarket but international markets too) and has a relatively low percentage annual management fee.

A contribution of £50pm would not be a problem, many providers accept less. But if there are are any fixed £ fees from the provider, obviously the less you invest the heavier the fee will seem as a proportion. So if only doing £50 a month you would prefer a company that charges based on a small percentage per year than one that charges a flat fee.

kinsae112

Yes sorry, a typo. can move to another trust fund but not elsewhere. Thanks for informing that I'd be able to move her out of CTFs from next year, will look into that.


okay,so looks like I shld be looking at JISA vs S&S investments (what does S&S mean?). Didn't know they charge fees for ISA accounts or that they're managed by fund managers so that's good to note and another one to investigate...feeling stressed thinking about it (& financial matters in general) but at least I know what I'm supposed to be looking for.

Mojisola

kinsae112 wrote: »

For now, we can afford to set aside just £50 per month for each child, hopefully more in the future.

Any savings you put by for them in their name will be theirs to spend as they want at 18.

If you want the savings to be spend on sensible things, it might be better to keep some of the money in your name. Some 18 year olds will use the money wisely; others won't.

kerri_gt

Mojisola wrote: »

Any savings you put by for them in their name will be theirs to spend as they want at 18.

If you want the savings to be spend on sensible things, it might be better to keep some of the money in your name. Some 18 year olds will use the money wisely; others won't.

From personal experience I would allow them access when they finish their education, or about to go to uni if they will need it then.

xylophone

https://forums.moneysavingexpert.com/discussion/comment/66166776#Comment_66166776

See post 4

kinsae112

Mojisola wrote: »

Any savings you put by for them in their name will be theirs to spend as they want at 18.

If you want the savings to be spend on sensible things, it might be better to keep some of the money in your name. Some 18 year olds will use the money wisely; others won't.

Ah good point. In our mind, its planning for their future so we can give them a lump sum for say, house deposit, wedding, a postgrad or such like. I'd want to avoid giving them free control over the money at such a young age (18yrs) to spend on, i dunno, travelling or who knows what will tickle their fancy at 18. Is an ISA best avoided?

kinsae112

I am grateful to all who have taken time to respond. I find such matters very confusing so I'm grateful to all who have helped me think this matter through and present options/ideas

bowlhead99

kinsae112 wrote: »

Ah good point. In our mind, its planning for their future so we can give them a lump sum for say, house deposit, wedding, a postgrad or such like. I'd want to avoid giving them free control over the money at such a young age (18yrs) to spend on, i dunno, travelling or who knows what will tickle their fancy at 18. Is an ISA best avoided?

The high level choices are:
a) have the money saved or invested in an ISA for them or in bare trust outside an ISA with them as beneficiary

b) have the money saved or invested in your / your partner's name

Method a allows you to use your children's own tax allowances but they will get control of it earlier. Method b keeps the assets in your own name so you can decide when to give them a gift later but then you are responsible for any taxes on it.

You may find there are not actually any taxes to pay if you follow model b and stay within your own allowances (for example use your own S&S ISA allowances, you plus partner is £30k a year each and you're only looking at putting £50 a month in for each child). And even if you've run out of your own ISA allowances, if you're not higher rate taxpayers you won't have any taxes to pay on dividends anyway.

So, ignoring JISAs and CTFs would be perfectly valid, you could just use adult ISAs investing £100 a month between the two of them. Perhaps a negative of that approach is that the money is still in your name so if you are claiming benefits or being chased by creditors, savings and investments in your own name would generally be counted.

If the concern is just that they would not be responsible enough at 16-18, your choices do of course include educating them to be responsible

Also you could consider what is reasonable for them to spend money on as part of setting themselves up for adult life. You mention postgrad or wedding. Why postgrad but not undergrad? And an expensive wedding party is a luxury and something that might not be relevant until their 30s. Travel is something that, if they are responsible, could be valuable and interesting. A car when they leave school and need to commute to a job could be very handy.

Obviously everyone has their own views on what is 'appropriate' for their children to splurge cash on. If you focus on educating them to have similar values to yourself, you may find there is no conflict anyway. And if they do want to spend money on a summer's travelling and then don't have enough for a house deposit, that is in itself a life lesson that they would learn. You may find that £50 a month for 18 years would still not be enough to get a house deposit in the part of the country they choose to live in 2034. And before they worry about a deposit, they have to get sufficiently far through their career to be able to get the mortgage.

So there are a whole bunch of unknowns here. Your main choice at this stage is just whether you think the advantages of putting the cash in their name where it can't be touched by you or your creditors or your taxman, outweigh the benefits of keeping control. While financial services businesses often have good low-cost, low minimum contribution investment deals for children, it may be an advantage to just have all the money in one place and pay one set of account fees and work out the split between your money and child 1's money and child 2's money, yourself.

For example you would very likely find something with lower fees than your Children's Mutual CTF, by looking at investing £100pm in your own S&S ISA with many of the big providers. You can't take the existing CTF money out, as mentioned up the thread, but new money doesn't have to keep going there.

kinsae112

bowlhead99 wrote: »

If the concern is just that they would not be responsible enough at 16-18, your choices do of course include educating them to be responsible

Very fair point, I'd like to think that we'd raise them well and not worry, but I'm sure my parents thought the same and we (my siblings & I) have all made poor financial choices in our twenties which we're now cleaning up

kinsae112

bowlhead99 wrote: »

The high level choices are:
a) have the money saved or invested in an ISA for them or in bare trust outside an ISA with them as beneficiary

b) have the money saved or invested in your / your partner's name

bowlhead99, if you're still following this thread, thank you for your comments, much appreciated. Option A - ISA with them as beneficiary. I note your later comment about fees etc but wondered whether the allowance which each child is entitled to would them be reduced by setting up both kids with 1 ISA account. Not sure if I'm explaining myself here well, but from reading comments, looks like each child is entitled to X amount of tax free savings (is that right?) and if so, would this only be applicable per child per account? or could both kids have 1 account and still have the X amount of tax free savings they are each entitled to?