The best way to save for your children
Finding the best way to save for your children’s future is one of the most rewarding financial decisions you can make.
As financial advisers, we have helped many parents navigate this journey, and we would like to share some insights on the best ways to save for your little ones.
Start Early and Be Consistent
The power of compound interest can’t be overstated. By starting early, even small, regular contributions can grow significantly over time.
As Warren Buffett famously said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Consider a Junior ISA
In the 2024/25 tax year, you can save up to £9,000 per child in a Junior ISA.
This tax-efficient wrapper allows investments to grow free from income tax and capital gains tax.
When your child turns 18, the account converts to an adult ISA, giving them a fantastic financial head start.
They can be set up on a cash basis or stocks & shares.
You can start with lump sums or regular amounts. Starting early can be an excellent foundation for university.
Don’t Overlook Premium Bonds
Premium Bonds, offered by NS&I, are another popular option. While they don’t earn interest, your investment is entered into a monthly prize draw.
Any winnings are tax-free, and your initial investment is secure.
Buying premium Bonds for Birthdays or Christmas can make it an exciting present to save for your children. It’s exciting to check for prizes each month, and you know the money is safe.
Consider a Pension for Long-Term Saving
It might seem odd to think about a pension for a child, but it can be an incredibly tax-efficient way to save for their distant future.
In the 2024/25 tax year, you can contribute up to £2,880 per year, which is topped up to £3,600 with tax relief.
What a great legacy to be left by a grandparent or parent to be used in 40/50 years.
Utilise Regular Savings Accounts
Many banks offer children’s savings accounts with competitive interest rates.
These can be a great way to teach kids about saving and compound interest.
Read the beginners guide to investing
Invest in Stocks and Shares
For longer-term goals, consider investing in a diversified portfolio of stocks and shares. While this carries more risk, it also offers the potential for higher returns.
As legendary investor Peter Lynch once said, “The best stock to buy is the one you already own.” This applies to saving for your children too – consistency and patience are key.
Remember, every family’s situation is unique.
What works best for you will depend on your financial circumstances, goals, and risk tolerance.
As your children grow, involve them in discussions about saving and investing. This financial education can be just as valuable as the money itself.
Starting early and choosing the right savings vehicles gives your children a significant financial advantage.
Please feel free to contact us today if you’d like to discuss the best way to save for your children.
