Saving For Your Children



Saving for Your Grand children’s Future

When it comes to saving, staying ahead of the game is tougher than ever, so
it pays to make an early start. There are plenty of steps that grandparents can
take to help smooth out the rocky path that lies in front of their
grandchildren. Indeed, because of the UK’s tax laws, grandparents can often
play a big role in saving for a child’s future.

Whilst there are caps on the interest a child can earn from money saved by
its parents before tax is applicable, as long as it doesn’t exceed the
personal allowance (£8,105 for 2012/2013) grandparent’s savings are tax free.

So how to go about saving? Here are some of the choices;

Child Trust Funds (CTF)

Although these government-run funds have been discontinued, if your
grandchild was born between 1 September 2002 and 2 January 2011, an account in
their name should have been automatically set up. These tax-free accounts were
initially funded by a government voucher for between £50 and £250, depending
on when the child was born. If a CTF is in place, family members and friends can
contribute up to £3,600 per annum.

The account is long term and the child cannot touch the money until their
18th birthday, at which point they assume control of the fund. This makes this a
good option if you want to insure that they won’t be able to spend the money
until they’ve done a bit of growing up.

Junior ISAs

A CTF isn’t the only tax free way to save for your grandkids. In November
2011 the government introduced the Junior ISA for children under 18. This
replaced the discontinued CTF. Unlike CTFs, the government makes no contribution
to the Junior ISA, which operates in exactly the same fashion as an ordinary
ISA. The maximum amount that can be invested in any one tax year is £3,600, and
this can be in either:

  • A cash Junior ISA
  • A stocks and shares Junior ISA
  • A combination of the two

The cash savings option is the safest, as the capital is protected. Because
options 2 and 3 are subject to the whims of the stock market, it’s possible that
the total return might be less than the amount invested. Though, there is a risk
involved it is worth remembering that shares based ISAs have traditionally
tended to outperform cash options.

Remember, if your grandchild already has a CTF, they will not be allowed to
open a Junior ISA.

Buying Gold

One fear people have about using many saving vehicles, especially in the
current financial climate, is that, given the prevalent economic uncertainty,
it’s hard to know their investment is safe. Shares based options can be
hampered by the vagaries of the stock market, whilst money in a savings account
can loose value in real terms if inflation outstrips interest rates.

Buying gold is one way of avoiding these dangers, offering as it does
protection from the volatile fluctuations than can occur in the currency,
property and stock markets. Furthermore, as gold is so loved of investors as a
means of balancing their portfolios, it’s always in demand. The liquidity of
gold can make is a bonus for those who want to use it as a way of saving, given
that you never know when you might want to get your hands on the money.

On of the easiest ways to invest in gold is through sovereigns. As well as
being gold, these items are also collectible, giving them another source of
value. In addition, due to the EU gold directive, gold coins are not subject to
VAT. Last, but not least, British sovereigns are not subject to capital gains
tax, making one of them one of the most attractive methods of safeguarding
capital.

Children’s Bonus Bonds

Both tax and risk free, Children’s Bonus Bonds are issued by National Savings
and Investment (NS&I), and come with a 100 percent guarantee of safety. You
can invest £3,000 per issue at a fixed rate of interest, plus a bonus if the
bond is left for the full five years. These Bonds can be cashed in early, but
there will be no bonus paid. If they’re cashed in during the first year, no
interest is paid at all, so be sure to think ahead before making the commitment.

You can also make use of other NS&I tax-free products for your
grandchildren. With Index-linked Savings Certificates, you can invest from £100
to £15,000 for either three or five years. The government guarantees that if
kept for at least one year, the interest on these certificates will remain above
the rate of inflation. Like Children’s Bonus Bonds, these certificates pay no
interest if cashed in during the first year.

Premium Bonds

Although Premium Bonds pay no interest, your capital is guaranteed, and, of
course, there is always the chance of winning as much as £1 million! You can
invest between £100 and £30,000 in Premium Bonds on behalf of your grandchild,
but they will not be allowed to personally hold the Bond until they reach age
sixteen.

Whichever option you choose, it should help your grandchild get off on the
right foot financially, and encourage them to save for their own future.

William Tackle writes on all manner of financial products with the aim of
helping his readers make informed decisions. You can find more of his work at
www.casafinance.co.uk.