Childrens' savings/investments/pensions

liviboy

Hi all,

I have a 2yo and I would like to start some sort of long-term savins for him, perhaps starting at something small like £20-£40 per month.

My original thoughts was something like a child's stakeholder pension.

However, also thinking about some flexibility...so

I then went down the route of £20 into pension, £20 into another long-term savings idea. These would be minimum amounts with top-ups, particularly into the savings/investments account.

However, I really don't have a clue where to start when it comes to long-term saving/investments. Pensions are quite easy and straightforward to find information on.

Any helpful hints on where to look would be appreciated.

Thanks in advance :-)

aj23_2

When you say long term, how long are we talking?

liviboy

Until 18 anyway for the savings side, so 16ish years. Pension woulonviously be up to the government!

aj23_2

So assuming you save the £40 (advisable than the lower amount) you'd save £480 a year. That's £7,680 over 16 years.

Children's regular savers tend to only be for 12 months, and despite paying good rates, they are low max. pay ins, so I don't think that would be good for you, as you'd have to open a new one each year and you'd only get about £10 on your £480.

The Junior ISA's (https://www.moneysavingexpert.com/savings/junior-isa#bestbuy) pay good rates, and if you have any extra money you'd like to save on behalf at the end of the tax year, you could put it in. But you'd have to open a new one each year, and the previous one would mature. At present rates the top paying Coventry Junior Cash ISA would only net you £16 a year, so that would be a couple of hundred pounds over 16 years provided you opened a new one from scratch each tax year.

Child Saving's (https://www.moneysavingexpert.com/savings/child-savings-tax-free#best) could be a good option too. If you put £40 a month, for 16 years, into the Nationwide Smart Limited Access, provided the rate stays at least 2.5%, you'd accrue £1,700 in interest as it will have compounded on your yearly increasing balance.. Look at the list in this link.

Look for ones with a high max balance that you could deposit to year upon year to keep it simple, save you looking for the top paying 12 month account each year. That way, as I said above, any extra money you'd like to save can just be deposited no problem, and will mean more interest.

Regarding pension, you can't open one on behalf of your child anyway, and retirement age will probably be in the mid 70s for your child by the same he or she reaches retirement, and a government state pension will not be enough to keep him or her going more than a few months by that time! Leave a private pension until your child is working.

MallyGirl

aj23 wrote: »

The Junior ISA's (https://www.moneysavingexpert.com/savings/junior-isa#bestbuy) pay good rates, and if you have any extra money you'd like to save on behalf at the end of the tax year, you could put it in. [STRIKE]But you'd have to open a new one each year, and the previous one would mature[/STRIKE]. At present rates the top paying Coventry Junior Cash ISA would only net you £16 a year, so that would be a couple of hundred pounds over 16 years provided you opened a new one from scratch each tax year.

You do not have to open Junior cash ISA every year. They just run on till 18

aj23_2

MallyGirl wrote: »

You do not have to open Junior cash ISA every year. They just run on till 18

Do they compound the interest year on year?

louloubelle79

Hello
You can open a pension for your child as I have a stakeholder pension for each of my children paying in £20 monthly.

I have been using the Santander mini account in Trust for their savings as pays 3% up to £2000. I have also a JISA S&S for them each with Vanguard.

ValiantSon

Hi,

If you drip-feed in at £40 per month then the Coventry Junior Cash ISA would return £9 over one year, rather than £16 as claimed above. This would, in subsequent years compound, so the return effectively improves a little.

However, if you are looking at a minimum 16 year timescale then I'd suggest using a S&S JISA to invest in. Over the long term, S&S is much more likely to deliver better growth than a savings account. You could most easily do this through a multi-asset fund. I've linked below to some information from one provider (Vanguard), that will hopefully explain a little. Vanguard are one of the biggest fund providers and their costs are low. The LifeStrategy funds are well-regarded. If you are interested, and want to find out a bit more about investing, then post questions back; there are plenty of knowledgeable people on here who can help.

https://www.vanguardinvestor.co.uk/investing-explained/stocks-shares-junior-isa

Despite what someone else has said, you can open a pension account for your children. Their speculation about retirement ages is exactly that: speculation. It is also irrelevant, as the pension would still be there , whatever the retirement age happened to be. Investing in pension funds over the long term delivers better growth, so it is not too early to start.

MallyGirl

aj23 wrote: »

Do they compound the interest year on year?

yes - Junior ISAs work just like a normal savings account and pay interest on the balance

aj23_2

The Coventry Junior ISA would return £16.80, not £9 as claimed above. That is wrong. Type £480 in the calculator in the box MSE provides for the listing and it will say £16.80, and this will compound annually with your subsequent year on year monthly deposits.

It doesn't work like a regular saver, where you get the interest rate on the average balance. This is an ISA where the interest is calculated daily and paid annually on the full balance, not the average balance. That's how all ISA's work.

It doesn't matter if you drip feed the £480, or lump deposit the £480, you will still get £16.80 after 12 months. As I said, this isn't regular saver where interest is accrued differently to an ISA. As MallyGirl said, Junior ISAs, and in turn, ISAs, work like normal savings account and pay interest on the balance, not the average balance.

With regard to pensions, bare in mind that this won't be accessible in part until you're child is (at present) 55 year old, where he or she can take out 25% tax free, but state pension age will most likely be in the 70s by the time your child reaches 55. I'm guessing you want something where you child has funds at 18, for university, car, house deposit etc., which someone above has not factored in. It's also relevant that retirement will go up as people are living longer and we need more taxes for supporting out services. It's a realty that millennial and future generations will be working longer, and will need more money for supporting themselves prior to retirement as the rate of rising living costs.

MallyGirl

aj23 wrote: »

It doesn't work like a regular saver, where you get the interest rate on the average balance. This is an ISA where the interest is calculated daily and paid annually on the full balance, not the average balance. That's how all ISA's work.

It doesn't matter if you drip feed the £480, or lump deposit the £480, you will still get £16.80 after 12 months. As I said, this isn't regular saver where interest is accrued differently to an ISA. As MallyGirl said, Junior ISAs, and in turn, ISAs, work like normal savings account and pay interest on the balance, not the average balance.

Sorry but this is not right.
If you drip feed then you will not get the same interest at the end of the year as you would if you paid it in as a lump sum on day 1.
If you pay in £40 on the 1st day of the month then the first month you will be generating interest on a balance of £40 calculated daily. After you pay in £40 on the 1st day of the second month then you will be generating interest on a balance of £80 calculated daily. This is what gives the 'average balance' appearance of the interest calculated.
Otherwise everyone would just add a lump sum on the last day of the year.