Investment for a 15 year old

lfc-lass_2

My daughter was left £5000 from her father 4 years ago which I put into a black cat bond with the cheshire building society at that time ( daughter is now 15). The bond has now come into fruition and she has £6500 to re invest. At the moment it is in the Abbey youth account but she said she would like to re-invest again for at least 3 years. Please could somebody give me some advice on the best possible options for this to happen. She is not bothered about gaining access to the money (as she sees me as bank of england lol) but she would like a decent return on her money if possible. My local abbey adviser said that because she is now 15, it would be hard to find the same kind of deal because she can sign for herself , where before I was a trustee. Sorry if this does not make sense but any help would be appreciated.

debbie42

If it's for just three years then savings probably makes more sense than an investment.

It's easy enough to get 5.5% on a child's account at the moment, which (if the rate stayed the same) would net £357 in interest for one year. When she's 16 she could have another look around and would have more of the adult accounts available to her, which seem to pay higher rates.

martinman3

The Leeds BS, Yorkshire BS and Chelsea BS allow accounts to held in trust before the age of 18.
This means that you can open a fixed rate bond in trust for your daughter and complete the R85 to ensure that the interest is paid gross.

YBS has the 2 year fixed at 7.00% http://www.ybs.co.uk/savings/future/2yrfixed/index.jsp which she can open herself (11 years or over) or can be held in trust.

Chelsea has 1 and 2 year fixed at 6.6%/6.5% http://www.thechelsea.co.uk/savings/invest_fixrateops_intro.html

Leeds currently has a two year fixed at 6.05% http://www.leedsbuildingsociety.co.uk/savings/fixed_rate_bond_issue2.html, three year fixed at 6.0% http://www.leedsbuildingsociety.co.uk/savings/fixed_rate_bond_issue3.html or the Inflation Buster Bond paying RPI+2.5% (my personal favourite )http://www.leedsbuildingsociety.co.uk/savings/inflation_buster_bond.html.

They are likely to be other Building Societies which do this but it seems to be a well guarded secret.

You will also find as I did that the NS&I products are not competitive for non-tax-payers.

Wherever you go, I would not suggest putting all the money into one product as rates are more likely to go up than down and there may be better ones along soon.

Should also add that because of the HMRC £100 rule concerning interest from money given by parents it is much better if the account is in her name, or if the trustee is not a parent, or if you are the trustee and the interest in a year is less than £100 a year.

mr_rush

Does she turn 16 soon? As son as she does, £3600 should go into a cash ISA. Compound interest is a wonderful thing.

martinman3

mr_rush wrote: »

Does she turn 16 soon? As son as she does, £3600 should go into a cash ISA. Compound interest is a wonderful thing.

Remember ISAs are only of greatest benefit to tax payers, if you can get 7.00% fixed for 2 years with no tax to pay I would take advantage of it.

Though I should add for completeness that if her daughter earns enough to pay tax before the fixed rate ends, the interest would need to be taxed and an ISA would be a better choice from then on.

mr_rush

Remember ISAs are only of greatest benefit to tax payers

My parents started a cash ISA for me when I was just leaving school. They continued to pay into it every year while I was at university (6 years). I've continued since graduating. Current balance is around £43K and earning £2800 in interest this year. If my parents had gone for accounts with slightly better interest rates when I was at school or at university then I'd be paying interest on those savings now. As it is I have the benefit of 6-8 extra years of compound interest.

I think unless there is some extraordinary reason, cash should go into a cash ISA whether you are a taxpayer or not.
- you are psychologically less likely to touch it as its in a tax efficient wrapper.
- it encourages responsible saving
- you will benefit from greater compound interest in the long term

martinman3

mr_rush wrote: »

My parents started a cash ISA for me when I was just leaving school. They continued to pay into it every year while I was at university (6 years). I've continued since graduating. Current balance is around £43K and earning £2800 in interest this year. If my parents had gone for accounts with slightly better interest rates when I was at school or at university then I'd be paying interest on those savings now. As it is I have the benefit of 6-8 extra years of compound interest.

I think unless there is some extraordinary reason, cash should go into a cash ISA whether you are a taxpayer or not.
- you are psychologically less likely to touch it as its in a tax efficient wrapper.
- it encourages responsible saving
- you will benefit from greater compound interest in the long term

You have just proved that all situations are different which is why IFAs were invented. In your case your parents had the funds available to top up your ISA each year for 6 years, the OP had a lump sum which would use up her allowance in 1 -2 tax years, depending on her daughters birthday.

What were the interest rates like while your ISA was growing ? Were fixed rate bonds paying about 1.5% more than variable rate ISAs ? I bet not.

If you can move your savings from potentially taxable to tax-free ISAs before you actually pay tax then you will lose nothing and in the current situation will gain.

Lokolo

Yes but also you must remember when they are going to use the money. If the money is not going to be touched for 10 years, why on earth would you want to go for a savings account?

Persoanlly I would wait to see what the OPs daughter is planning to do after GCSEs!

mr_rush

If you can move your savings from potentially taxable to tax-free ISAs before you actually pay tax then you will lose nothing and in the current situation will gain.

You will lose as you will only be able to move £3600/annum into cash ISA. Your argument remains unconvincing. The sooner you start earning compound tax-free interest, the better it is in th long term. OP's daughter wants to invest for atleast 3 years - age 18 she may want to invest for another 3. In which case she'd kick herself for not having started cash ISA age 16. If she needs the cash age 18 for a car then she can withdraw funds. YBS paying 7% interest, Barclays cash ISA paying 6.25%, no brainer IMHO.

martinman3

mr_rush wrote: »

You will lose as you will only be able to move £3600/annum into cash ISA. Your argument remains unconvincing. The sooner you start earning compound tax-free interest, the better it is in th long term. OP's daughter wants to invest for atleast 3 years - age 18 she may want to invest for another 3. In which case she'd kick herself for not having started cash ISA age 16. If she needs the cash age 18 for a car then she can withdraw funds. YBS paying 7% interest, Barclays cash ISA paying 6.25%, no brainer IMHO.

With the greatest of respect there are several flaws in your argument.

1. These fixed rate bonds can have the interest added to the bond, so the interest is compounded too.
2. Where in the original question does it mention investing £3600 a year until she starts paying tax ? It is a lump sum of £6500.
3. If she was investing regularly over a longer period of time as you did it would be preferable to use a S&S ISA.
4. The Barclays Tax Haven ISA has a 1% bonus only for the first year, then it is 5.25%.
5. As I said their decision depends on their individual circumstances, how much they have to save, the access to it, fixed or variable rate.

Your argument remains unconvincing

The purpose of this thread is not to convince you that you are wrong. I have noticed a growing number of people on these forums seem to be here to force their views onto others or start arguments but I am not one of them.

mr_rush

The purpose of this thread is not to convince you that you are wrong. I have noticed a growing number of people on these forums seem to be here to force their views onto others or start arguments but I am not one of them.

Not trying to have an arguement. Lets just agree to disagree. You think bonds are the way to go. I think ISA will have the potential for greater benefit.

All the best.