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How to save for your children’s future

Not sure how to save for your children? You’re not alone. Many parents struggle to know which savings accounts and strategies are best. Furthermore, it’s filled with important decisions like deciding when your children’s should get access to the cash and what it should be used. It may also impact your own personal tax situation.

Saving for your children is an important parental responsibility that everyone wants to get right. Like all savings plans, the earlier you start the better, however small. This guide will take you through the important steps and decisions to help build a better financial future for you and your children.

Saving for your children’s financial future

Imagine you could do one simple thing to ensure your child’s financial future is secure.

Even better, it doesn’t need to have a significant impact on your finances!

In this post, we’ll explore the key ways you can take to save money for your children and how to make that money grow with little or no effort.

These apply to parents, grandparents, relatives or anyone who wishes to help improve their children’s financial lot and future life options.

I’ll also give you an insight into how I save for my two young children.

Why save for your children (or grandchildren)?

Whilst we instinctively know this, it’s important to understand the ‘why’.

The first time you hold that precious bundle of joy in your arms, you’re overcome with happiness and emotion. Gradually, that dawning realisation creeps upon us and we suddenly realise that these things cost money.

Like, a lot of money. The kind of money that would make your child-free friends’ eyes water and if you told them, they would laugh in your face as they booked their next all-inclusive holiday in the sun.

Research shows that caring for a child in the UK until they’re 18 can cost from between £75,000 to £187,000 in the UK.

However, planning early for your child can make a huge difference. Typical expensive life events or items associated with having children could include:

  • Education fees
  • School trips
  • Driving lessons
  • First car
  • First home
  • Wedding

All of these expenses could put stress on your personal financial future. So, why not have a plan and have money in your back pocket at the ready?

Heads up – We aim to produce honest and accurate content, however, we are not financial advisors. If you need financial advice, Unbiased can connect you with a suitable professional for free. Some of our links may earn us a small commission to help us run the site.

Should I even save for my children?

Do you believe kids should be self-sufficient or do you want to provide a financial comfort blanket to ensure your kids never have to worry about money? It’s a personal question and you could sit anywhere on that spectrum.

The stark reality is that in today’s world, those that get a financial leg-up usually receive some sort of advantage, whether it be private education, a first step on to the property ladder or travelling opportunities. Some even receive a lump sum that is already generating an income by the time they’re 18.

None of that makes it right and doesn’t mean they’ll end up with good personal finance skills or ‘money morals’, but there it is. That’s the game we call life.

Whatever your views, it’s worth thinking about. You don’t have to decide now, but you can start to save now and decide later. Having some initial thoughts, however, is important as they will inform the type of child savings vehicle that is right for you and your family.


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How can I afford to save for my children?

The great thing about saving for children is that you could have 18 years to build a financial security blanket.

Whilst 18 years is a long time, in reality, most parents delay starting until there’s some spare cash in their budget.

In reality though, how often do we have spare cash kicking around with nothing for it to go towards? Just like saving for ourselves, we have to prioritise saving for our children.

Even saving £20 from one less takeaway a month (cliche I know, but relevant), when compounded over five, 10 or 20 years will make a huge difference. Don’t believe me? check out the math on our How to become a millionaire – the surprisingly easy way article.

If you need some help setting money aside then check out our Budget like a Pro article. This helps simplify your budget and reduce your money stresses.

When should children have access to savings?

Understanding what financial education you want to provide your children is important.

This will inform you when you want your children to have access to any money you save for them. It could be at 16 or 18 or at your discretion when you decide the time is right.

It’s important to decide this, as many savings products will transfer ownership of the funds to your child once they reach a certain age.

I want my kids to have a balance between being financially savvy yet secure. I want them to learn how hard it is to earn money and to be financially self-sufficient. But most importantly, I want to ensure I have the financial means to help out if and when it’s required.

Saving for children: start early, however small

The great thing about kid’s finances is that the large ticket items tend to happen around their late teens, so you have a good amount of time to plan.

If you started saving £20 per month for your child, after 18 years you would have £4,320 assuming you stuck it into a non-interest earning bank account. Now had you invested that money, based on a modest 5% return you could be looking at nearly £7,000.

If you plan your children’s savings from the time they’re born, then you have over 200 months before they turn 18! That’s plenty of time to squirrel away even a small stash.

Set up a standing order and put in the maximum you can afford each month. You can start with as little as £10 to build a savings habit. Set this to come out of your account the day after payday so you never have to make a conscious choice to save.

Personally, I set myself a reminder every six months to review how much I put into my kid’s savings.

Many parents will look for savings or investments accounts to maximise returns as much as possible. So let’s take a look at what options are currently available.

Children’s Savings considerations

Before we get to the accounts just take a moment to consider the questions below, as they may change how you plan your child’s future finances.

Who is the legal owner of the money?

This is important, as you may not want your child to take control of the money when they turn 16. They may not be able to spend it until 18 but at that point you no longer have control. Consider how responsible you feel your child will be at that age.

Some parents may want to hold onto that cash until children are older, say if you wanted to help with a house deposit.

The thought of handing over thousands of pounds to my future 18-year-old son scares me! Personally, I want something I can control but that’s just me, you may have a different view.

The flip side is that getting a chunk of money at a young age is a good way of training your child how to handle money. It could potentially be seen as training on how to deal with a larger amount when their inheritance lands.

The choice is yours.

Have you considered tax?

If you think kids don’t have to pay tax, you are incorrect.

Children have a personal tax allowance like adults, however, there is a catch. If in a single tax year, a child earns more than £100 of interest on money given by a parent then HMRC wants to know. Anything over the £100 threshold will be taxed at the parent’s tax rate.

The £100 rate does not apply if:

  • Money is in a Junior ISA or Child Trust Fund
  • Money is given by grandparents, relatives or friends

This is basically a way to stop parents from sheltering cash in their children’s names.

Here is a link to the official government site on saving for children.

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Children’s saving options

We’ve got four (OK three) main categories of children’s savings vehicles to consider. There is another option for parents but this comes a little later:

Educating your children about money can be tricky. I’ve been using GoHenry, a children’s bank account with a difference, to help my 9-year-old son. Check out our review if you’d like to learn more.

Children’s Savings Accounts

The easiest and safest (think risk-free) place to store your offspring’s future wealth is in a savings account specifically designed for children. A children’s savings account can be easily set up and is available from most mainstream banks.

  • Typically controlled by the parent or legal guardian until they are either 16 or 18
  • Parents can withdraw the money if required
  • Others such as grandparents can pay into an account by a bank transfer

There are two types of children’s savings accounts:

1. Children’s Regular Saver Account

Regular Saver Accounts require parents or grandparents to commit a fixed amount of money per month in return for a higher rate of interest.

If you miss a month or want to withdraw the money, you will usually miss out on the higher interest rate.

They often have conditions on the number of withdrawals (such as once per year) and some do not allow withdrawals at all within the term.

Consider these for more medium to long-term savings, perhaps such as further education or a car in ten years time.

One of the best Children’s regular savings accounts currently is from Halifax. It’s limited to £100 per month and is fixed for 1 year. While the headline rate of 3.5% may sound great compared to adult accounts, it equates to less than £20 interest over the term!

When looking at regular savings, don’t necessarily be swayed by larger headline rates of interest. For parents that are time poor, switching accounts each year may feel not worth the hassle even if it’s the most financially beneficial.

2. Children’s Easy-Access Savings Account

Easy-Access Savings accounts usually offer a slightly lower rate of interest, but they do allow withdrawals without penalties. There is also usually an upper limit to which the interest is applied.

Due to their flexibility, they could be considered a type of ‘working savings account’, rather than for long term purchases, and as such are often a wise choice if you need to regularly access the funds, such as for school trips or clothing.

Currently one of the best Children’s Easy-Access account is the Santander 123 mini account. It pays 3% interest on balances between £1,500 and £2,000. This account is actually a children’s bank account and so can’t be opened for children under 13. If you put in the full £2,000 you’d make £60 per year for your child. Watch out as you won’t earn any interest on balances above £2,000.

Check the terms when opening an easy-access savings account as initial high rates of interest may be lost after the first year. Ideally, you want to “set and forget” your child’s savings. Chopping and changing accounts can add to your life admin. If you have kids, let’s be honest, you want less life admin, not more!

Best Children’s Savings Accounts

The best rates for children’s savings accounts can be found Here.

Are children taxed on their savings?

It may surprise you, but children are also subject to tax just like the rest of us.

You need to tell HMRC if your child earns over £100 in interest on money given to them by a parent. As you can see from the savings on offer above, this might be tricky without having multiple accounts for your child.

HMRC also need to be informed if the child earns more than their personal allowance, such as from a Trust.

Grandparent, relatives & friends don’t have this to worry about the £100 limit. For grandparents, in particular, this may be a nice way of reducing your inheritance tax by passing on money early.

Similarly, Junior ISAs and Child Trust Funds are also exempt from the £100 limit.

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Am I taxed on my children’s savings?

You will have to pay tax on all of the interest earned if it is above your own personal savings allowance.

If you want to avoid the tax implications, and the paperwork involved, then consider our next contender…….

Junior ISA (JISA)

A Junior Individual Savings Account (JISA) is designed as a long-term, tax-free savings account for children.

This means that the interest or gains made within the account are exempt from tax.

This tax-free benefit can be very powerful over the long term and not having to worry about declaring the tax is also a boon.

Additionally, you can deposit up to £9,000 per year meaning your child has the potential to earn interest on a much larger savings stash!

There are some key things to consider though:

  • Your child must be under 18 to open an account.
  • Living in the UK.
  • A maximum of £9,000 can be saved/invested (2021/22 financial year).
  • You cannot have a Junior ISA and a Child Trust Fund.
  • Parents manage the account until 16
  • At 16 the child takes over account management
  • At 18 the child can withdraw money

There are two types of Junior ISA:

  • Junior Cash ISA 
  • Junior Stocks and Shares ISA

Junior Cash ISA works like a normal savings account, however, you pay no tax on any interest you earn. Like the savings account mentioned above, you can get fixed and regular savings rates.

Junior Stocks and Shares ISA allows you to invest your child’s money in stocks, bonds, funds etc. While stocks and shares are seen as riskier investments, over time they have proved to return greater results than cash savings. Don’t believe me? Check out the surprisingly easy way to become a millionaire.

Many parents will open a Junior Stocks and Shares ISA for their children and expect to invest for 18 or more years. This is usually long enough to increases the likelihood of riding out market crashes and corrections.

Be warned though – the value of your child’s savings can go down as well as up when investing.

Unlike savings accounts, Junior ISAs do not have the £100 threshold on interest earned. Therefore parents can invest money for a child without any tax concerns as long as they stay under the generous £9,000 per year allowance.

Click here to read our Ultimate Guide to ISAs.

The problem with Junior ISAs

One of the major considerations for parents opening a Junior ISA is whether they are comfortable giving their child access to all of the funds at 18 years old.

For me, this is why I have not opened a Junior ISA for my children. Mainly because I know what I was like at 18……!

Spending the last 18 years saving for your children only to see them blow it on cars and parties may be a very bitter pill for many parents to swallow.

There is also the counter-argument that this is a good opportunity for children to put into practice what you have taught them about money and financial responsibility.

So are Junior ISAs actually worth opening?

Well, each parent is allowed to invest up to £20,000 per year in an ISA under their own allowance. If you have not filled your own allowance it may be better to use this first. If you exceed that limit and have cash left over, then a Junior ISA may be a neat way to further access tax-free savings.

Personally, my children’s savings are invested in my own Stocks & Shares ISA. I buy a different fund so I can track it separately. This allows me to leverage the tax benefits, whilst keeping control. I can then choose at which point I need to help my kids and how much they should get, based on the situation at the time.

If you want to invest like me in your own Stocks & Shares ISA then check out our reviews below on some of the best platforms:

  • Hargreaves Lansdown – Best platform & app, competitive fees and access to the widest range of investments
  • Fidelity International – Access to a wide range of investments with cheaper fees than Hargreaves Lansdown.
  • Vanguard Investor – Lowest Fees but limited to Vanguard funds only (no picking Apple or Amazon stocks here)
  • Interactive Investor – Usually the cheapest platform for those with over £50,000 invested.
  • Moneybox – Good App and easy to invest very small amounts however charges are high for smaller balances

Premium Bonds for children

Premium Bonds are a firm favourite due to their history and the security of being backed by the UK Government. In fact, over £75 billion is invested in Premium Bonds making them one of the most successful financial products in the world!

Each pound invested in Premium Bonds is entered into a lottery that is drawn once a month. Interest payments are paid into a fund that pays out to the winners of the draw each month. That means there’s no guarantee your money will grow unless you’re one of the lucky winners.  Unlike a lottery, your pound is entered into every monthly draw until you withdraw your cash.

  • Minimum £25 purchase
  • Maximum £50,000 investment per child
  • No interest paid
  • Monthly chance of winning cash
  • Prizes range from £25 to £1 million
  • Guaranteed by the UK government
  • Winnings are tax-free

If you would like to know more about Premium Bonds and if they make a good investment then check out our post here.

Premium Bonds can be purchased by parents and grandparents for children with a minimum deposit of £25.

Premium Bonds are guaranteed by the UK Government, so there is unlikely to be a safer place to keep your child’s money.

The major drawback is the chances of winning are seriously low. Statistically, you would be far better off with a decent savings account. In the past decade, only five children have scooped the £1 million jackpot.

Here is the link if you would like to invest or gift Premium Bonds.

How to save for your children’s future - final thoughts

Saving for children can be easier than you think. The key is starting early even if you start small. Small amounts over time soon add up as we demonstrate in our How to become a millionaire article.

Before you consider saving or investing for your children, make sure you have your own finances under control. Get yourself a great budget, pay off debt and make sure you have an emergency fund.

How we will educate our children and future generations about financial responsibility could give them better foundations than we had, and that is priceless.

If you’d like to learn more about improving your finances, please come join our Free UK Personal Finance Club. You’ll be joined by other like-minded people who support each other to build a better financial future.

Here’s to Financial Fitness does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.