Saving for teenager (til age 25)

dcmb2018

Hi, I'd like to start saving £100 per month for my son (15) and continue for 10 years. Would really appreciate any advice on what would be the best way to maximise any return on that money. Is it simply paying into a savings account or is there a better way to do it?
Thanks

Terry_Towelling

You have a very lucky son. First thing is to decide whether you are going to save in your name or his because that will change things a bit.

McKneff

If you save in his name, the money will become his at 18, whether you like it or not

elsien

But if you save it in your name then if you ever need to claim means tested benefits it will be taken into account.

Alexland

McKneff wrote: »

If you save in his name, the money will become his at 18, whether you like it or not

He won't have access if you put it in his pension however this is probably not what the OP intends. I guess 25 is not only the point contributions would stop but also the intended access date for some reason?

Alex

ValiantSon

Okay, there are issues around whether you save in your name, or in his. If you want to ensure that the money remains saved until he is 25 then you need to save it in your own name.

Assuming that you aren't comfortable with investment risk, then probably the best option is to open a regular saver, as these are paying the best interest rates at the moment. To get the best available rate of 5%, you will need a linked current account. Options:

Santander - 5% - needs 123 or 123 Lite current account. These current accounts have a monthly fee (£5 and £1), but ay cashback on some direct debits. Perhaps best if you think you would benefit from the current account.

HSBC - 5% - needs HSBC Advance current account. This current account is often seen as being targeted at higher income earners because of the high monthly pay in of £1,750 per month.

First Direct - 5% - needs First Direct current account. This has a high monthly fee (£10), but it can be avoided by having just £1 in an easy access savings account with them.

Nationwide - 5% - needs FlexDirect or FlexPlus current account. FlexPlus has a high fee and comes with all sorts of insurance, but FlexDirect is free, and offers 5% on your own money up to £2,500 for one year.

M&S Bank - 5% - needs M&S current account, which you must have switched to with two direct debits.

From the above, the Nationwide FlexDirect is probably the best option.

Saving £100 per month at 5% will result in £32.26 interest being paid. At the end of the year, you will have to transfer the balance (£1232.26) out and open a new regular saver and start the process again. You can hold the matured balance in the best paying easy access, fixed rate savings, or current account at the time. At present this would mean getting up to 5% on the matured balance in a current account, 2.15% in fixed rate savings (one year), or 1.4% in easy access.

kidmugsy

You could save into any old account for him, until he is 17 and 364 days. Then open a seven year fixed term saver for the money. At least that gets him to 24 which might be a good enough approximation to 25.

But I have no suggestions for what to do with your £100 p.m. after he's 18. You could put £25 p.m. into a Tax Exempt Saving Policy with a Friendly Society: that typically lasts ten years. But that still leaves £75 p.m.

I know! You could pay the money into a LISA for him - he'd be a mug to take it out before he buys a house with it, which may well be after he's 25.

Might there be an insurance product that does the trick? Or you could use a trust but that would presumably be absurd for a modest sum such as £100 pm.

ValiantSon

kidmugsy wrote: »

You could save into any old account for him, until he is 17 and 364 days. Then open a seven year fixed term saver for the money. At least that gets him to 24 which might be a good enough approximation to 25.

But I have no suggestions for what to do with your £100 p.m. after he's 18. You could put £25 p.m. into a Tax Exempt Saving Policy with a Friendly Society: that typically lasts ten years. But that still leaves £75 p.m.

I know! You could pay the money into a LISA for him - he'd be a mug to take it out before he buys a house with it, which may well be after he's 25.

Might there be an insurance product that does the trick? Or you could use a trust but that would presumably be absurd for a modest sum such as £100 pm.

So using regular savers in their own name wasn't something you considered?

Malthusian

kidmugsy wrote: »

You could save into any old account for him, until he is 17 and 364 days. Then open a seven year fixed term saver for the money. At least that gets him to 24 which might be a good enough approximation to 25.

If we're talking about bare trust money then the OP would be in breach of their legal duties as trustees on two counts if they followed that advice.

However the OP has not given us any reason to think that a bare trust is necessary. Talking about saving for a child until they are [some age past 18] brings out the gotcha instinct in these parts and people instantly start going on about how Saunders v Vautier means you can't do that. But you can. You just have to save in your own name, mentally earmarked for the beneficiary but still your own money.

Depending on your financial circs this may be tax-inefficient compared to a bare trust or Junior ISA, but the OP hasn't given us any information so we don't currently know whether there would be any extra tax.

Terry_Towelling

A lot depends on how much faff you want.

To some degree, if you are going for a high-interest current account to get at the linked Regular Saver (RS), then, ironically, the RS is a little redundant at the beginning of your journey because you can simply add the £100 pm to the current account to get the 5% rate.

Things to consider with this approach are the pay-in requirements of the current account, any fees to operate the account and the longevity of the high-interest offer.

TSB, if you are feeling brave (unfair perhaps) will give 5% on balances up to £1500 with only a £500 monthly pay-in requirement but you do need 2 DDrs to get the offer. There is no stated end date for this offer.

Nationwide's FlexDirect requires £1000 monthly pay-in, requires no DDrs to be set up, will pay 5% on balances up to £2500 but for only 12 months.

So, probably best to start with just one high-interest current account and then renew the strategy after 12 or so months.

For example, use TSB for a year(ish) (managing the pay-in/out and DDr requirements with your own funds/bills) and then leave that account to keep gathering interest until it reaches the upper interest-earning balance limit and open a FlexDirect account and start paying in the £100 pm to that. At that point you can also stop funding the TSB account with your own funds (apart from the DDr amounts) and start switching £900 pm of the saved amount between the two accounts to meet the pay-in requirements of both accounts.

The unknowns for the future are whether these accounts will continue to be offered with such enticing terms, so your strategy will need to be flexible.

Alexland

kidmugsy wrote: »

You could pay the money into a LISA for him - he'd be a mug to take it out before he buys a house with it, which may well be after he's 25.

He would need to be age 18 to open a LISA although a HTB ISA is available from age 16 however it would need opening by 30th November 2019 and the 25% bonus towards a qualifying property purchase must be claimed before 1st December 2030.

The HTB ISA property price limit of £450k (or £250k outside London) might not buy much in a decades time. Still the interest rate is good, there is no withdrawal penalty and the government might either revise the price cap or give another opportunity to transfer into a newer FTBer product.

Alex