Savings for a newborn

LookingForTheSun

Hi,
My partner and I have just had a baby. I'm looking at setting up a savings account for her by putting away around £1,500 each year for the next 16 to 18 years. I'm not sure if a junior ISA would be my best bet - I see there are a few well known high street brands offering JISAs at 3.25 - 3.5%, but I'm reluctant for the following reasons:
1. The interest rates are variable.
2. The money is locked away for 18 years.
I'm debating whether to take the money and put it into a low cost passive index fund such as Vanguard instead.
Advice appreciated.
Thanks

eskbanker

An S&S JISA would be a better bet than a cash one for 18 years (to minimise the chances of losing real-terms value to inflation), but would also entail locking the money away until shes 18. If that's an issue for you, you could always keep the money in your own name and keep your options open....

xylophone

Re JISA

https://www.gov.uk/junior-individual-savings-accounts

https://moneytothemasses.com/quick-savings/parents/best-junior-stocks-and-shares-isa

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

https://monevator.com/using-vanguard-lifestrategy-funds-life/

If you choose to gift to your minor, unmarried child outside a tax privileged account like JISA, bear in mind the £100 Rule - below is archived and takes no account of the fact that interest is now paid gross but explains the rule well.

https://webarchive.nationalarchives.gov.uk/20121003064215/http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingMoney/PlanningYourPersonalFinances/DG_10013916

You might choose to regard your own ISA as "earmarked" for your child but be aware that if you should ever need means tested benefits, any savings in your name will be taken into account.

AnotherJoe

For 18 years, invest dont save.
p.s. Congratulations !

cloud_dog

This question is asked frequently on these boards.

Your statements are a little contradictory, i.e. for the child and lock away until 18, but you may have meant to imply something I cannot assume.

First of all you need to understand and decide if the money is for/is the child's? Or, if it is for you to use for the child's benefit?

If the former, then you should not feel constrained by locking the money away until 18. If the later, then it cannot be held in the child's name (without appropriate trust designations etc etc; I think xylophone will have covered this).

As with anything in life things are rarely black and white. If it is money you want control of then the simplest, easiest thing is to retain the money in your/OH name. If it is going to be the child's money then put it in the child's name, and seriously consider using investments (funds) rather than savings.

As an example my DD has (and some of these have been added as the years passed):

1. JISA Stocks and Shares - We and grandparents put money in. In my opinion this is large enough and we haven't added to it in a number of years.
2. GIA (General Investment Account) Stocks and Shares - Two accounts, in my/OH name (to spread any income or CGT considerations).
3. Savings Account (Bare Trust in DD name) - Any gifts or money we have given to DD in here. DD can use this money as they see fit (our DD is older now)
4. Savings Accounts - In OH name. Like the two GIA the monies are to benefit our DD but are under our control

For accounts in our name it might be that we simply give any monies over at age 18, or maybe we won't but at least we have flexibility to manage appropriately.

atush

LookingForTheSun wrote: »

Hi,
My partner and I have just had a baby. I'm looking at setting up a savings account for her by putting away around £1,500 each year for the next 16 to 18 years. I'm not sure if a junior ISA would be my best bet - I see there are a few well known high street brands offering JISAs at 3.25 - 3.5%, but I'm reluctant for the following reasons:
1. The interest rates are variable.
2. The money is locked away for 18 years.
I'm debating whether to take the money and put it into a low cost passive index fund such as Vanguard instead.
Advice appreciated.
Thanks

Dont look at rates. Look at Equity investments over cash. over an 18 yr time frame they should outperform cash. You can use a passive index in a JISA