£3000 for Child to invest

funkmaster_2

We were given £3000 for our 5 year old daughter last year and put in the Yorkshire Building Society Treasure Bond paying 5.25% gross. It runs out on 01/08/05 and so we have a month to move it anywhere we like or roll it over for another year (probably at a rate of 4.5% gross I think). We will take the £160ish interest out and put it into another account for her and start again with the £3000.

What should we do with it? We will definitely not need to touch it and so would be happy with locking it away for 1 year or possibly even 2 or 3 years.

We could put more money in monthly or not, depending on whether that gives us a better rate.

What about Premium Bonds?

Could anyone please advise. I am aware that for this kind of amount us moving it will mean £20-£50 difference over a year maximum but it all counts.

ReportInvestor

It's a tricky decision for you. Since everyone expects the Bank Base Rate to fall in August, returns on fixed rate accounts have been falling. But other voices still think medium term interest rates may go higher to counter possible increases in inflation. If anyone really knew the answers they'd be sunning themselves in the Bahamas.

Money Saving views on premium bonds for savers - Possibly not a good idea

If you can invest new money monthly, then you should consider £100pm into the Halifax 10% children's account as this should give you about £30 extra interest over the year compared to a 5% account.

Two accounts could gain your daugher an extra £60. But be aware that there are tax implications if gifts from you ever result in interest of more than £100 pa for your daughter. If such gifts come equally from you and your partner then that effectively becomes £200 in total. This rule is not a factor when considering gifts from grandparents, other relatives or friends i.e. it does not apply to the original £3K (but the Halifax's 10% account rules say that the money must be a new gift from an adult to the child, made by direct debit).

MSE on the Halifax Regular Saver for children

funkmaster_2

Am I right in saying that I can't put the three grand in the Halifax account though?

ReportInvestor

You are right .

Bristol & West has a 4.75% 5 year fixed rate children's bond if your view of interest rates is that they will fall and stay low. 5 years is quite a long time if it's the wrong decision or if it's the right one ).

If you choose instant access then Chelsea BS pays 5.1% and both Nationwide and Yorkshire around 5%. Personally I'd trust the last two to keep their rates competitive.

If you live in the SE/SW/West Midlands then Portman BS tell me that there is nothing to stop a child investing £3K in their Branch Bonus Saver account (5.55% including 0.8% six month bonus - 90 Day Notice & £1K minimum).

But don't forget to expect a cut of 0.25% on the variable rate accounts when the BofE goes into action in August.

Crown

Hi, Im afraid I havent got any advice on where would be the best place to put your daughters savings, I have more of a question.

Is there a reason you are going to take the interest of £160 from the account? Surely it would be better to leave the the interest with the principle amount and let that gain interest too. Let the Magic of Compound interest do it works

Your daughter will have a quite a nest egg if you was to do this until she was 21

funkmaster_2

Rightly or wrongly I'm going to open a straightforward Children's account for Chelsea and start teaching her about money. We all have Natwest accounts and the plan is for her to open her own (with the free gifts) and buy herself some guinea pigs/hutch etc.

She'll then have premium bonds, a treasure bond, a high-interest savings account (that other members of the family pay in to) and a Natwest account like all of us.

dunstonh

When the money was gifted, was it stated that it should belong to her? If so, then she should be keeping the interest and not you.

Just making sure as you dont want to get in to any trouble.

funkmaster_2

The money is all Chelsea's, yes. Why wouldn't it be? Perhaps you misread my post. She is keeping it all, every penny.

"We will take the £160ish interest out and put it into another account for her"

funkmaster_2

Have worried about this overnight. If people on a forum think we may be taking it for our own use then probably better that we leave it where it is and open new accounts with some fresh money.

You wouldn't believe how much I fret about what other people think.

ReportInvestor

Please don't worry in this way, fm. I think a couple of people may have jumped to hasty conclusions based on their interpretation/implication of couple of your posts that did not spell out steps x,y,z,a,b,c in full technicolour detail :rolleyes: .

Of course you should always keep your records for if the IR comes calling, but with Gordon's tax/benefit system in the state it is, there are more pressing matters for the Revenue than tracking the transfer of £12 interest between two or three accounts. But always be aware that it does do spot checks.

How do the mods put it? "Be nice to all MoneySavers" .

dunstonh

Hey, its better to be safe than sorry.

Back to subject, any reason you are not including equity based investments in your considerations? A 5 year old has time on their hands from an investment point of view and the potential for real capital growth is much better.