How to Get the Best UK Child Savings Account
George Washington Carver, the inventor who discovered 300 uses of peanuts, once wrote, “How far you go in life depends on your being tender with the young…” Indeed, is anything in life more important than our children? They carry our name and our genes, but more importantly, they represent Earth’s future. In fact, it could be argued that what matters most in life is what we do for children and the community, as they will remain when we are gone.
Types of Child Savings
While we cannot put a monetary value on our children, we need money for the necessities of life, in our cash-based society. One way we can secure a solid financial future for our children, is through Child Savings Account. The funds can be used for a variety of purposes, such as for college or emergency situations. You can take some basic steps to determine which child savings account is best for your little one:
Cash Accounts
These are the most common accounts for Children’s savings, and can be secured from many high street banks or building societies (children’s building society accounts). It is important to search thoroughly for the best payable interest rates. You want an interest rate that will compound exponentially, to provide the best value for your investment. So it is not advisable to simply walk or drive to your local bank or building society.
Keep an eye on the Cash Account’s interest rate, as you would watch your own child. One method that banks use to attract more investors is to provide a sky-high introductory interest rate that quietly trickles down. It is advisable to have an annual review conducted, in order to keep tabs on the interest rate. You are investing in your child’s future, so this slight inconvenience is certainly worthwhile.
Child Trust Funds
A child trust fund is a UK government solution for create a savings fund for every lad in the UK. Here is how it works. Through a child trust fund account, the government makes payments to each and every child. Both you, your family, and your friends can also contribute to the account.
If your child was born on or after September 1, 2002, and is entitled to, and receiving Child Benefit, then he or she qualifies for Child Trust Funds. The child himself or herself owns the funds in the Child Trust Fund, and they can access it once they turn 18-years-old. Furthermore, your child can use the funds for college, a vehicle, an electronic gadget, or anything else they want to have.
Friendly Society Schemes (Tax Exempt)
This type of savings is often used for children’s savings. They provide low premiums (translation: regular required contributions). On the other hand, Friendly Society Schemes can be pricey and provide less flexibility than other means of savings. To illustrate this reality, consider that roughly £2 to £3 of every £10 saved must be dedicated to taxes.
Investment trusts / Unit Trusts
Have you considered investing in the stock market, as a means of Child Savings? Historically, stock shares have typically provided higher returns than savings, in the long-term. However, no solid indicators show that this trend will continue forever. Due to the mobility of the stock market, you should be prepared for both gains and losses.
Which scheme is best? Typically, search for one that charges less than 1% pa. You also should find a scheme with no joining or upfront charge. Be wary of investment houses’ schemes that are geared towards Child’s Savings. The reason is that their charges could significantly cut into any profits that you earn.
Cash ISAs
As of April 6, 2008, the mini and maxi Cash ISAs no longer exist. On the other hand, you can invest up to £7,200 in a Cash ISA, and invest a maximum of £3,600 in cash. Furthermore, you could invest the entire amount of the Cash ISA, into stocks and shares.
National Savings/Investment Bonds
You should consider Investments’ Children’s Bonus Bonds and National Savings, if you want to conduct major long-term savings for your child. You can take out these bonds for children under 16-years-old. And the added bonus is that you are not required to pay taxes on any profits that you earn. Exactly how do these bonds work? Typically, they pay out a fixed rate of interest for a particular period. Yes, high street bank investment could provide you with higher interest rates. However, these government-backed bonds are safe, and you do not have to lose any sleep about interest rate changes.
Stakeholder Pensions
This is yet another wise choice if you want to launch a long-term savings plan for your son or daughter. The UK government has announced that this pension is applicable for anyone in the UK. How does it work? If you are not earning income, then the maximum you can deposit into a Stakeholder is £3,600 (this figure includes the tax benefit). On the other hand, if you are earning income, then the deposit limits are equal to those of personal and occupational pensions.
Keep in mind that the maximum annual contribution of £91,800 is based on your age and the percentage of relevant gross earnings, as indicated above. Thus, if you are 74-years-old, and earning £92,000 a year, you could only contribute 40% of £91,800, annually.
Finding the Best Child Saving
Here are some guidelines to determine the best Child Savings Account for your child:
1. Familiarize yourself with the various means of Children’s Savings. This should include how the various savings accounts work, as well as their terms and conditions.
2. Determine whether you want to perform the savings for a child, or whether you want a means by which the child can save for himself or herself
3. Consider the terms and risk involved with each type of Children’s Savings Account.
4. Compare and contrast the charges and returns of each savings account.
5. Keep in mind how taxes influence the various accounts for Children’s Savings.
Finally keep in mind that childrens savings and investments are regulated by the FSA
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