Joanne Gallacher
By Joanne Gallacher

Saving for your child’s future

Saving for your child

Not everyone can afford to save for their children's future, but if even if you can only afford to put away a few pounds each month into a savings account, you can still build up a sizeable sum by the time your child reaches adulthood. Saving for your child and helping to pay for further education or a deposit on their first flat is something we all want to do. Perhaps the easiest way to save for your child's future is to open a bank or building society account in your child's name. Children can save up to £6,475 without paying tax on their interest. The largest amount that a child can earn tax free from interest payments in any given tax year is £100.

By comparison, the maximum amount that you can save as an adult without having to pay tax on the interest is £10,200 per year, via the ISA (Individual Savings Account) scheme. With an ISA, you can only invest up to £5,100 in a savings account known as a Cash ISA, and £5,100 in a Stocks and Shares ISA. With a stocks and shares ISA, there is a danger that you could lose money if the stocks and shares in the fund under-perform, but on the other hand, you may find that you can get much higher returns from a stocks and shares ISA if you can afford to take a risk.

For example, Legal & General's high-risk Alpha fund, which can be invested in using the ISA wrapper, grew by over 77% in the past year alone - log onto their website to find out more about getting a Legal & General ISA. When it comes to setting up an account in your child's name, you have plenty of options.

The government-backed National Savings and Investments scheme has a range of tax-exempt savings schemes specifically designed for children. These include Children's Bonus Bonds, which pay a fixed rate of interest plus a bonus every five years, and Premium Bonds, which give your child a chance to win up to a million pounds every month if you have a minimum of £100 invested.

If your child was born after August 31, 2002, they are entitled to receive a head start in the form of a £250 Child Trust Fund voucher. This money belongs to your child, and can't be accessed until he or she is 18. If you do not invest the voucher within one year, the government will invest it for you in a stakeholder account.

Most banks and building societies offer Child Trust Fund accounts, and offer a choice between investing it in a savings account, a stakeholder account, or a stock market fund. If you do not add to this, the £250 will probably only grow to around four or five hundred pounds by the time your child is 18, but if you were to top it up by £10 each month, you could end up with a figure of between three and five thousand pounds.

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