Children's savings and Friendly Society tax-exempt plans

DreamyMummy

Hello.  I'm new to this forum.

In need of some advice/opinions here.
I have a baby,  6 months old tomorrow, and looking into best savings options for her as hubby and I would like to give her the best financial start in life we possibly can. We're fairly risk averse.

So far we've opened a kids cash ISA with Coventry which all her cash gifts from family and friends has been paid into (decent amount at well over £1k). We plan to pay into that account any lump sum gifts she receives as we know family will guve her a lot for Christmas, birthdays and other cultural celebrations we have. We've also opened the Halifax regular monthly saver that we're giving her £100 per month (decent interest rate but is a 12 month plan). When the Halifax account term ends next year we will then transfer into her cash ISA and then depending on what deals are available maybe start again with another fixed rate 12 month regular saver and continue that cycle every year.

I'm looking also at opening possibly the Barclays version of the 12 month regular monthly saver account for her, it's 0.5% lower than Halifax but the next best account for kids out there. Is this a good idea?

I am also considering taking out a Friendly society tax-exempt long term plan 10 or 25 years for £270 per year. Now I know there are 2 schools of thought on these. Some saying that with all the fees that they're actually not worth it and returns are very poor and others who see them as a good "investment" but from what I've read tend to be people less financially savvy. I admit to having one until a few years ago (10 year plan) and wasn't exactly bowled over with my return but my parents took out couple for my sibling and I when we were kids with a decent return apparently. Have these products lost their shine or still worth doing?

Any other ideas/advice on best ways to save for kids will be gratefully received.
TIA

Albermarle

I am also considering taking out a Friendly society tax-exempt long term plan 10 or 25 years for £270 per year. Now I know there are 2 schools of thought on these. Some saying that with all the fees that they're actually not worth it and returns are very poor and others who see them as a good "investment" but from what I've read tend to be people less financially savvy

As this is a forum generally inhabited by financially savvy people , the only answer you will get is they are very poor value for money . I am not an expert on child accounts but I am sure you will get good advice from other posters.

One point is that you do not have to do everything in their name . You can save/invest your selves and give them the money at a time of your choosing rather than when they are 16/18. Also in your noble  endeavour to save for your child do not neglect your own finances , especially making sure you have a good retirement income/pension when the time comes. 

bowlhead99

DreamyMummy said:

I am also considering taking out a Friendly society tax-exempt long term plan 10 or 25 years for £270 per year. Now I know there are 2 schools of thought on these. Some saying that with all the fees that they're actually not worth it and returns are very poor and others who see them as a good "investment" but from what I've read tend to be people less financially savvy. I admit to having one until a few years ago (10 year plan) and wasn't exactly bowled over with my return but my parents took out couple for my sibling and I when we were kids with a decent return apparently. Have these products lost their shine or still worth doing?

Any other ideas/advice on best ways to save for kids will be gratefully received.

Your parents might have found that Friendly Society plans gave 'a decent return' 20 or 30 years ago when returns in the market were generally quite high anyway (not like the low interest rates we see today) so that many forms of investment would have given high headline returns, and it was harder to find low-fee alternative/rival products so they may not have been aware what better options were out there to compare against.

These days they are pretty much obsolete as plenty of better tax-efficient plans are available (your child would not be making a lot of taxable income from it anyway, on a £20pm investment for a decade or two); the high fee structure compared to rival opportunities means they won't really offer better returns over a 10, 20 or 30 year period than you would get from a low cost S&S JISA, or by using your own ISA or LISA (offering a government bonus if you don't touch it until you're 60), or your own pension (offering tax relief though you can't access it until your late 50s).

As you're already using a 'Cash' version of the Junior ISA, and she can only have contributions go into one JISA in any tax year, it would make sense to simply add £20 a month into whatever investments you are making for yourself, and gift the money to the child later. Between you and your husband you have plenty of annual allowance to invest efficiently.

[edit as corrected by xylophone below - the child can have more than one ISA in the tax year if one is cash and one is S&S, so if the gifts from far an wide don't exceed her subscription allowance for 2020/21 she could have an 'investment' pot separately from her 'cash' pot. Though you may prefer to keep the money invested in your own names so that you can choose the timing of when you later give her the money, rather than her taking control of it automatically when old enough].

Old_Lifer

The tax-exempt plans have high charges which eat into the return.

dunstonh

Have these products lost their shine or still worth doing?

They largely went obsolete in the 1990s.    High charges, no flexibility and often pretty poor quality investment funds.

S&S ISAs are the product used nowadays with parents keeping control of the money until they want to pass it to the children.

but my parents took out couple for my sibling and I when we were kids with a decent return apparently

Up until the late 90s, everything looked like it had a good return as inflation was much higher back then.   The gross return (before inflation) was higher in those days and largely masked the high charges.  Plus, small premium plans were sold in bulk quantities and became profitable for that reason.  Today, not many buy them and they dont have the scale of distribution to match modern investments. 

xylophone

As you're already using a 'Cash' version of the Junior ISA, and she can only have contributions go into one JISA in any tax year,

A child can have both  a cash JISA and a stocks and shares ISA, dividing the year's allowance between the two.

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

To open a Junior ISA you need to:

• choose the type of Junior ISA you want for your child - cash or stocks and shares (or both)
• choose your account provider
• get an application form from them
• Example
  If your child has £2,000 paid into their cash Junior ISA from 6 April 2020 to 5 April 2021, only £7,000 could be paid into their stocks and shares Junior ISA in the same tax year.
  

DiggerUK

DreamyMummy said:..............Any other ideas/advice on best ways to save for kids will be gratefully received. TIA

Get your child a birthday and/or christmas Gold Sovereign, or maybe a Gold Britannia. 

As they are gold and UK legal tender there are no tax implications buying or selling. As they will be in your safekeeping  you can also decide at what point to hand over possession..._

DreamyMummy

Great advice everyone.  Thank you for confirming my feelings that I was probably making a mistake with the tax-exempt savings plan and that S&S ISA is the better option.  Thanks also for the tip on gold sovereign, great idea - I've been wondering what things to pop in her Christmas stocking.

ratechaser

bowlhead99 said:

DreamyMummy said:

I am also considering taking out a Friendly society tax-exempt long term plan 10 or 25 years for £270 per year. Now I know there are 2 schools of thought on these. Some saying that with all the fees that they're actually not worth it and returns are very poor and others who see them as a good "investment" but from what I've read tend to be people less financially savvy. I admit to having one until a few years ago (10 year plan) and wasn't exactly bowled over with my return but my parents took out couple for my sibling and I when we were kids with a decent return apparently. Have these products lost their shine or still worth doing?

Any other ideas/advice on best ways to save for kids will be gratefully received.

Your parents might have found that Friendly Society plans gave 'a decent return' 20 or 30 years ago when returns in the market were generally quite high anyway (not like the low interest rates we see today) so that many forms of investment would have given high headline returns, and it was harder to find low-fee alternative/rival products so they may not have been aware what better options were out there to compare against.

These days they are pretty much obsolete as plenty of better tax-efficient plans are available (your child would not be making a lot of taxable income from it anyway, on a £20pm investment for a decade or two); the high fee structure compared to rival opportunities means they won't really offer better returns over a 10, 20 or 30 year period than you would get from a low cost S&S JISA, or by using your own ISA or LISA (offering a government bonus if you don't touch it until you're 60), or your own pension (offering tax relief though you can't access it until your late 50s).

As you're already using a 'Cash' version of the Junior ISA, and she can only have contributions go into one JISA in any tax year, it would make sense to simply add £20 a month into whatever investments you are making for yourself, and gift the money to the child later. Between you and your husband you have plenty of annual allowance to invest efficiently.

[edit as corrected by xylophone below - the child can have more than one ISA in the tax year if one is cash and one is S&S, so if the gifts from far an wide don't exceed her subscription allowance for 2020/21 she could have an 'investment' pot separately from her 'cash' pot. Though you may prefer to keep the money invested in your own names so that you can choose the timing of when you later give her the money, rather than her taking control of it automatically when old enough].

This. The last time I took out an FS plan was in 1992, and that guaranteed 12% PA over 25 years. At the time it was actually nothing that special, but as you'll appreciate, it started to look spectacular over the last half of the term.

Needless to say, there's nothing close to being that good available today!

jesshove

In 2004 when my first grand child was born I invested about £250 in a Child Trust account with Compass Friendly Society. I would like to get some up to date information from them but no-one answers their telephone number (can only find one). I'm wondering if they are still operating or maybe have been taken over but can't find anything online at all. I would be most grateful for any information  Best wishes Jessica

xylophone

https://odiham.cylex-uk.co.uk/company/compass-friendly-society-limited-16853759.html
Have you tried sending a message?