5 Simple Steps to Get the Best Childrens Savings Account
As the ancient saying goes, “time stops for no man.” Albert Einstein also once wrote, “The only reason for time is so that everything doesn’t happen at once.” When planning for our child’s future, time is of the essence. While planning is important and ultimately saves time, we must follow it up with tough choices and actions.
The roughly eighteen years that our children live with us, is relatively a drop in the bucket. It is roughly a quarter of the average Briton’s lifespan of 75 years for men, and 80 years for women. From the day that our children are born, to the day their headmasters hand them their high school diplomas, can zip by faster than a bullet train. While the experiences that we share with our precious sons and daughters are priceless, the cost of living, by definition, is not. It is never too early to start preparing for your child’s future, through the best child savings account. The key is to first determine which type of account is ideal for our particular financial situation and plans. Here are some steps to get you on the right track:
1. Learn about the various types of Children’s Savings Accounts.
Cash accounts: You can easily find these types of accounts at high street banks and building societies. Your mission is to shop around, in order to locate interest rates that will remain high for the duration that you keep the account.
Cash ISAs: With the restructuring of UK’s Cash ISAS on April 6, 2008, you can wave goodbye to mini and maxi Cash ISAs. Instead, you can now annually save up to £3,600 in cash, and up to £7,200 in stocks and shares. The total yearly savings limit for a Cash ISA is now 7,200.
Child Trust Funds: These UK government-sponsored programs allow the family members and friends of children, to pay into a child trust fund. Children who were born on or after September 1, 2002 and who qualify for receiving Child Benefit, quality for Child Trust Funds. At the age of 18-years-old they can spend the money.
Investment Trusts / Unit Trusts: These child saving accounts are ideal for long-term investments. They involve investing in the stock market, so they can result in gains and losses. In particular, watch out for overly high charges.
National Savings / Investments Bonds: These long-term savings plans let you avoid paying taxes on the interest that is earned. You can take out these bonds for children up to the age of 16-years-old. They also usually pay out a fixed rate of interest, for an exact period. Keep your eyes peeled for changes in interest rates!
Stakeholder Pensions: This is yet another type of long-term savings plan. Anyone can avail of Stakeholder Pensions. Based on your age, you cannot contribute more than a corresponding percentage of £91,800 annually. With this new type of pension, no initial charges are required, and charges cannot exceed 1% of your pension fund.
Friendly Society Schemes (tax exempt): These savings accounts provide low premiums (regular contributions), and are often geared towards Children’s Savings. However, keep in mind that they can be quite pricey and inflexible, so proceed with caution.
2. Compare the returns and charges of individual types of savings accounts
When you compare children’s savings it is imperative that you conduct a comparison of charges and returns. Low returns or high charges can affect your profit margin, while a combination of both could be disastrous!
Do you like freebies? To retain (the children of customers) and attract new customers, Banks often give out freebies such as calculators and moneyboxes. You can collect a wealth of freebies by opening up new accounts. The initial deposit is small, and sometimes the freebies’ values are actually higher than the interest that the account earns.
However, if you are investing a significant amount for your little one, shop, shop, shop for the best interest rates. Children’s Savings accounts typically are higher than their adult equivalents, so doing a little footwork will allow your child to pile up even more savings.
However, keep in mind that interest rates are not carved in stone, and various factors can change them.
3. Consider the terms, conditions, and risk involved with each account
You should consider many factors before opening an account. Determine which funds are taxable or non-taxable. Also, learn about conditions regarding withdrawing the funds. And while it may seem obvious, remember that when accounts are in your child’s name, it is your child’s funds. The majority of accounts require children to be at least seven-years-old to open their own accounts, and several Children’s Savings accounts allow you to manage the account’s funds.
4. Choose an account to save for your child or one that lets him or her save
If you want to save funds for your child, the interest rate is the most important factor. In other words, the bottom line is the bottom line. A variety of different accounts are out there, and each of them provides different features, timeframes, conditions, etc.
However, you may want to choose means by which your child can save himself or herself. In this case, having excellent access to depositing and withdrawing funds should be your top concern. Many high street banks provide accounts for children, with various freebies to motivate them to start saving early.
5. Consider whether or not taxes are a factor in the Child’s Savings Account
You should always keep in mind that Children’s Savings accounts are not always tax free. Like the income of adults in the UK, a child’s income is not taxed until it reaches the Annual Personal Allowance (APA), which includes all income from salary, savings, and investment.
That said, due to factors such as (justifiable) child labor laws, children typically do not reach the APA ceiling. Going with the assumption that your child will fail to earn the APA, secure an Inland Revenue R85 form from your bank, when opening a Children’s Savings account.
Finally always remember that you can avail of UK regulators advice on children savings.
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