Child Savings and Investment Plans – it’s never too early to start saving or investing!
In an uncertain economic climate more and more parents are taking steps to ensure their children are given extra financial protection. As your children grow, your family will face expenses both expected and unexpected, from school and university fees to medical bills. Creating a savings or investment plan ahead of time could mean you’ll be able to see you and your children through these eventualities with a minimum of stress.
What do I need from my savings or investment plan?
Before you choose a savings or investment plan for your children, you should consider what your goals are. If you have a clear idea of what you want to achieve, you’ll be able to select the plan which works best for your family. A savings or investment plan for your children can be used for a range of options, including:
- School fee planning
If you’re planning to opt for private education for your children, typical fees are around £3,500 a term. Depending on what kind of private education your child receives, you’ll need to prepare for the financial burden. Unexpected costs, such as sports, field trips and uniforms can add to the cost.
- University costs planning
University tuition is becoming more expensive every year – from September universities will be able to charge up to £9,000 a year in fees. On top of academic fees, your child may face the additional cost of living and maintenance – especially if they choose to move away from home. Investing before your child goes to university may prove to be a huge help when the costs eventually hit.
- Reducing inheritance tax
If you want to reduce the sting of an inheritance tax on your estate and give your child or grandchild the best possible start, investing in a savings or investment plan, such as a Junior ISA, may be right for you as the money will be passed on to your beneficiaries free from tax. Tax-free means free of income and capital gains tax (other than tax on dividends from UK shares). Tax treatment depends on individual circumstances and tax law may change in future. Both cash and stocks and shares JISAs are available. Please remember that with stock market investments, your investment can fall as well as rise and you might not get back as much as you have paid in.
What are my options?
When it comes to finding the plan that’s going to work best for you and your children, make sure you’re aware of your options. Some of these are listed below but you should take time to research further options that are available to suit your needs. The internet is a good source of free information. You can also contact a financial adviser, although there may be a charge for providing such advice and they should confirm any cost beforehand.
- Junior ISAs
If you have a long time to go before school or university begins, a JISA may appeal to you. The Junior Individual Savings Account is for children under the age of 18. There are limits on how much you can deposit in a JISA – £3,600 each tax year. You can make regular monthly deposits or lump sum payments into the plan. The lump sum your child will receive when they turn 18 will be tax-free. Tax-free means free of income and capital gains tax (other than tax on dividends from UK shares). Tax treatment depends on individual circumstances and tax law may change in future. Both cash and stocks and shares JISAs are available. Please remember that with stock market investments, your investment can fall as well as rise and you might not get back as much as you have paid in.
- National Savings Bonds
The Children’s Bonus Bond, offered by National Savings & Investments, is backed by the government and provides a way of saving securely for your child. The bonds offer a fixed rate of tax-free interest for five years and even deliver a bonus at the end if you hold onto them for the full term. Tax-free means the fund your plan invests in grows free of income and capital gains tax (other than tax on dividends from UK shares). Tax treatment depends on your individual circumstances and tax law may change in future. They can be cashed in early, but no interest is earned if cashed in within first year. Since the interest and payment are guaranteed, this may be a good option if you have a precise idea of what you’re saving for.
· Tax Exempt Savings Plans: you’re able to invest up to £25 per month in tax-exempt savings plans for children. Tax-free means free of income and capital gains tax (other than tax on dividends from UK shares). Be aware – tax treatment is based on individual circumstances and the levels of taxation may change in the future. If the child accesses the plan before a certain time, usually 10 years, tax payments may be due. As with all stock market investments they might not get back as much as you have paid in.
Being aware of every approach to saving or investing for your child’s future is the first and best step to ensuring they have the head start you want for them.
Author: Jill Mackay, Scottish Friendly
Scottish Friendly has provided no advice in relation to these plans. If you are in any doubt as to whether a plan is suitable for you, you should contact a financial advisor for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk Advisers may charge for providing such advice and should confirm any cost beforehand.