Saving for child's future - What's the best approach?

RDW1989

Hi everyone,

Since my daughter was born in 2020, I've been putting away £100 a month in a children's' savings account. It's starting to build up and I'm now wondering if I'm saving in the most cost-effective way. The main account gets 5.5% a month but after 12 months it refreshes and the balance transfers to another account with only 3.3% interest. I put some of it in a 2 year fixed ISA (5.22%) but as it's technically in my name (all of the accounts are even though they're kids accounts), I'm guessing this will stop me setting up an ISA for my own savings?

I'm hesitant to put it officially in my daughter's name in a way that means she'll get access to it at 16/18, because I'd like it to be saved for something important like a house deposit, starting a business, etc. and worry that at 18 she would fritter it away quickly. To be honest, I probably won't mention the savings to her until she's in her 20s. Any suggestions/advice on the best way to save the money and ensure that she's getting the best interest possible? Thanks in advance

Albermarle

Due to the time scale involved you would very likely get a better result by investing the money rather than using a savings account.

A Junior Stocks and shares ISA is usually recommended but she will get access at 18. She may or may not 'blow it' depending on how much you can teach about money and her personality.
If you prefer her not to have access at 18, you should invest your self in a Stocks and Shares ISA, and give her the money when appropriate.
If you search the forum there are numerous threads on this topic.
For example
Daughter's Savings — MoneySavingExpert Forum

xylophone

I've been putting away £100 a month in a children's' savings account.

If this is indeed a child account then the money within it belongs to your child absolutely - taking it out of that account and saving it in 

your own account is not correct.

If the child (non JISA) account is financed by you alone and the interest arising is greater than £100 per annum, then while it belongs absolutely to the child, the interest must be declared to HMRC as it is taxable on you,

If you do not wish your child to have access to her own money (and once gifted it is her money), then do not gift at all but save in your own ISA and gift at a time of your choosing.

RDW1989

Thanks both for your advice. So it sounds like a JISA is the best option, even though she will gain access at 18. I don't really want to keep the money in my own name because of the tax reasons you've mentioned (as I'm currently saving for house renovations so earning quite a bit of interest myself). Would you suggest putting half in a cash JISA and half in a stocks and shares JISA to spread the risk, or just to put it all in a stocks and shares ISA? She's only 4 so it'll have 16 years to appreciate interest.

mark_cycling00

What is the risk though? That the year before your daughter turns 18 there is a crash. Well a bad crash would leave your daughter with the same as if it had all been in savings. 

But what are the chances that this happens? 1 in 10? Even if it does she can leave it invested a couple more years and it will be back to about 40% higher than if it was in savings accounts.

Personally I've invested in a global fund for daughter that gives her a tiny slice of the whole world. so if the UK continues to sink globally then she benefits from high growth countries and can use the money to go and live somewhere better.

When I turned 18 I received some sensible post office savings that had earned a measly interest rate during periods of hyperinflation and in a currency that was only worth 1/3rd of its value against the USD.

Meanwhile my dad was retiring at 50 from his stock market investments...

Miri_J

I'd say very wise to keep it in your own name - I don't know if I'm too late to this, but I'm currently watching two young adults frittering away money given to them by grandparents. It was supposed to be for house deposits. I'm powerless to do anything about it because they are adults! It's causing substantial tension. It would have been far better given to them when they were ready for it!

eskbanker

Miri_J said:

I'd say very wise to keep it in your own name

That ship already sailed - OP confirmed that the money is in a child account, so already belongs to the daughter, despite the parent being named as trustee.