News/Events

Wealth of options for investing in your child's future [7th January 08]

My article last week looked at the growing necessity to invest for our children’s future and Child Trust Funds (CTF) introduced to encourage such savings. 

Short Term financial goals will require a low-risk way to grow the fund. 

Bank & building society Children’s Savings Accounts or, if your child is over the age of 16 Cash ISAs which are tax free savings.

National Savings and Investments offer investments for those under 16 years old; Children’s Bonus Bonds, cash investments with a tax free return if you invest for five years, they must end by the time the child reaches 21. Also Premium Bonds can also be brought by a parent, grandparent or guardian. Bonds go into a monthly draw, prizes are tax free but there is no guarantee that you will win. Minimum amount is £100. Bonds are sold at the original investment amount.

Long Term financial goals 10-20 years ahead could consider adopting a higher risk approach to keep up with and possibly exceed inflation. Inflation is an investment risk for long term investments; it can quickly eat into returns that only rely on interest rates which leaves little potential for growth.

Collective Investments pool together money from a number of individuals and spread risk though investment in a wider portfolio of individual shares. They provide access to a range of different opportunities and professional investment expertise. Some companies provide special savings plans for Children suitable for those born before the CTF qualifying date or for parents who want to invest over the maximum CTF amount. There are three types of collective funds,

Investment Trusts offer low cost access to a portfolio of shares, each trust is a listed company with a Board looking after the shareholders interests.   The price is influenced by investor demand as well as the value of its investments. 

There are two routes for those considering an Investment trust of behalf of their children. Designated Accounts – the investment is in your name and you keep control, you are liable for tax paid on the money and you can utilise this for any future costs. Bare Trusts – The money belongs to the child and is taxed as such. It is no longer part of your estate for Inheritance Tax (IHT) purposes.   The investment is in your name but you only act as trustee until the child reaches 18 (16 in Scotland) when they then have full control of the money. 

Unit Trusts and Open Ended Investment Companies (OEICs) are similar as both are open ended funds where the value of the investors’ holdings changes in line with the value of the funds assets. There is typically an annual management fee and initial change. 

Pensions it is now possible for parents and grandparents to set up a personal pension or stakeholder pension for their children contributing a maximum of £2808 a year, the Government tops this up to £3600. This makes them attractive in theory however not many clients I speak to choose this option as the child will only benefit on retirement. Priority is usually costs a child experiences in younger life, rather than income for retirement!  

This article does not constitute advice; Past performance can be no indication of future performance, Investments do have the potential to fall as well as rise and Tax rates and allowances are subject to change and are dependent on individual circumstances. Speak to an IFA to discuss your saving strategy for your child.

This article was written by Langtons - Published in the Western Morning News, This is Money, 7th January 2008