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Saving money for your kids from a young age can quickly add up to a significant sum. Consumer finance expert Paul Wilson explains how.
If you didn’t know it already, becoming a parent really teaches you the value of money. The extra costs of raising children put a spotlight on the rising cost of living, so it’s no surprise that so many parents try to give their youngsters a head start by putting money away for them from an early age. Saving money for your kids is a positive no matter which way you look at it, but there are things you can do to maximise their future wealth. Beyond putting cash into a piggy bank or plain old savings account, here are three of the very best ways to save for your kids.
We asked finance expert Paul Wilson (pictured below) from credit broker CashLady.com for his top tips.
Child Trust Funds (CTFs) are part of a closed government scheme that was intended to encourage parents to save for their children. While applications are now closed, it pays to make the most out of any existing accounts you may have opened for children who were born between 2002 and 2011.
Parents who opened a Child Trust Fund whilst the scheme was active can continue to add up to £9,000 per year to the account – which children can take control of once they turn 16.
Crucially, there is no tax to pay on any income or profit generated by a CTF. It also won’t affect any tax credits or benefits you receive, making this a tax-efficient way to save for those who managed to set one up.
Junior ISAs are a replacement for the Child Trust Fund scheme. In basic terms, they’re tax-free accounts for those aged under 18. They come in two varieties – cash, and stocks and shares.
Investing in a Junior Cash ISA means that you won’t have to pay tax on any interest earned. Alternatively, putting money into a Junior Stock and Shares ISA means you won’t pay any tax on capital growth – which put more simply is the rise in value of the investment.
It’s important to recognise that children can take control of their Junior ISA account when they turn 16, and can start to withdraw money when they’re 18. This means that whilst these accounts offer an effective way to save and invest money, parents may wish to look elsewhere if they’d prefer not to let their child loose with a windfall the moment they come of age.
It may seem premature, but saving for your child’s pension is one of the most sensible financial decisions you could make. A Junior Self Investment Personal Pension (SIPP) makes it possible to save over the long term.
Best of all, these accounts are even eligible for tax relief at 20%. That means that if you contribute the annual maximum of £2,880, the SIPP will actually be topped up by £3,600!