Ways to Save for Older Children
* For important information regarding the Child Trust Fund, Click here *
The vast majority of children in the 7-11 age bracket do not qualify for the Government’s Child Trust Fund scheme, which only covers those born after 31 August 2002 and hence only those who have turned seven since September 2009.
This is obviously a shame as there is no free £250 voucher (or £500 for those from low income families) with which to get you started, but since the real value of a Child Trust Fund comes from the top-ups made by you, your family and friends, much of the benefit can be replicated outside the scheme.
If you want the security of a cash-based account, a regular savings account like those mentioned above could be a worthwhile option, although you will need to bear in mind that any interest over £100 a year on money donated by a parent will be taxed as though it is the parent’s, not the child’s. (This applies to each parent, so you could potentially generate income of £200 a year before it is taxed).
Children have the same tax allowances as adults, but seldom earn enough money to fall into the tax net. You can get the interest on your child’s account paid gross by filling in form R85, which you should be able to get from your bank or building society.
There are tax-free choices available, such as Children’s Bonus Bonds from National Savings & Investments (www.nsandi.com), or you might fancy NS&I’s more left-field option of Premium Bonds, which pay no interest but offer the chance to participate in a monthly draw with tax-free prizes of up to £1 million.
If you are comfortable with the idea of taking some risk with your capital in return for the potential of higher rewards, you may want to consider a product investing in the stockmarket, such as F&C Investments’ Children’s Investment Plan (CIP).
It offers the same wide investment choice as F&C’s Child Trust Fund (CTF), with links to a range of 14 investment trusts covering shares, property and private equity.
By holding a CIP through a bare trust, it will be taxed as the child’s and is legally their property, just like a CTF. Or you can choose to hold it in a ‘designated account’, meaning it remains legally your property and will be taxed as such, but you retain control on when (or whether!) to give the proceeds to your child.
Even if your child is lucky enough to qualify for the CTF, a savings plan such as F&C’s CIP can give you greater flexibility, as there is no maximum investment, unlike the CTF which has a contribution cap of £1,200 a year.
Please bear in mind, though, that the value of investments and any income from them is not guaranteed, and you may get back less than you invested.
If you are in any doubt over whether investing in shares is the right thing for you, speak to a financial adviser.
No ‘free money’ from the Government? Think again…
Although most 7-11 year olds will not have had the windfall of Child Trust Fund vouchers from the Government, they will still be receiving Child Benefit, which is £20 a week for the eldest child and £13.20 for second and subsequent children.
As long as you are not relying on this money to make ends meet, it could give a welcome boost to older children’s savings.
Indeed, if you invest the whole of your first child’s Child Benefit, you would be well on the way to matching the maximum amount allowed each year in a Child Trust Fund (£1,040 compared with a CTF limit of £1,200).
View another relevant article here, giving information on Ways For Children To Save.
