Baby Savings

It’s very common with the arrival of a new baby that others will want to offer their help and support. You’ll be inundated with cards and presents, and, more often than not, financial gifts as well. But when it comes to planning for your baby’s financial future, where do we start?

Starting saving as early as possible is a great idea as it’s reckoned to cost £186,000 to raise a child to age twenty one; a truly frightening figure! But that’s pretty much every last penny including everything from childcare to holidays and pocket money, driving lessons and help with their university education. Currently only half of us save regularly for our child’s future but the earlier you start the more time your savings have to grow!

Child Trust Fund Account
To get you started there’s some free cash available from the Government to open a Child Trust Fund account. You’ll get this once you’ve registered for child benefit and it comes in the form of a voucher for either £250 or £500, depending on your household income.

You can’t cash in the voucher or use it for anything other than a Child Trust Fund account where the money’s safe until your child’s eighteen so no chance of them dipping into it! You’ll get another payment on your child’s seventh birthday, again either £250 or £500, and family and friends can also top up the account with up to £1,200 a year and all interest is tax free.

You can either invest the money in a cash account, just like a bank or building society savings account but generally paying a higher interest rate; at around 7% a year compared with around 5% in a standard savings account. Or you can go for an investment account which means the money’s invested in the stock market. There are two types of these; ‘stakeholder’ which has a maximum 1.5% annual charge or a ‘shares’ account where you have more choice about which shares to buy but running costs may be higher.

If you can’t decide which type of account to open don’t stick the voucher at the back of a drawer and forget about it as your child will be losing interest while the account’s not up and running. Just choose one as you can switch between the different types of account and providers if you want to.

Pocket Money Savings Accounts
Most bank and building society children’s accounts entice you in with ‘freebies’ like cuddly toys or piggybanks but you tend to pay for these gifts with low interest rates. Go for a postal or online account for the best deals and compare what’s on offer at sites like moneyfacts.co.uk. Right now the top paying accounts offer around 5.5% interest a year, but rates change so if six months later you find there’s a better account out there move your child’s savings!

If you’re prepared to commit to monthly savings an account like the Halifax Children’s Regular Saver currently pays 10% interest for a year but no withdrawals are permitted during that time. And if you’re worried about remembering to save on a regular basis set up a direct debit from your bank account each month.

Save While You Shop
Boost baby’s savings account every time you shop online by registering at kidstart.co.uk. When you shop at over two hundred online stores including M&S, Tesco, Bhs and John Lewis you’ll get up to 20% cash back with the savings paid directly into your child’s savings account. After registering just click on the store links to do your shopping. Encourage family and friends to do this too which all adds to your child’s savings.

Baby Pensions
Ok it may seem premature considering your baby’s retirement before their first birthday but many financial experts say starting a ‘stakeholder’ pension for your child is one of the best long term investments you can make. You can stop and start payments or pay in lump sums and while your kids’ can’t get at the money until they’re at least 55 they could retire with a cool one million pound pension pot if you pay in the maximum £2,880 a year, (bumped up to £3,600 by the tax man who adds to your contributions), for the first sixteen years of their lives.*

Savings Checklist

• Use your Child Trust Fund voucher to open an account as soon as possible.
• Fill in form R85 when opening children’s savings accounts to ensure interest is paid tax free.
• Shop around once a year to check rates; if they’re not the best transfer the money to another account, but check there are no penalties for early withdrawal first.
• For information on Child Trust Fund accounts go to www.childtrustfund.gov.uk or call 0845 302 1470.
• For financial advice on pensions or stock market related investments go to unbiased.co.uk or call 0800 085 3250 for details of Independent Financial Advisors in your area.

Sources

• Half of us save for our child’s future – www.savingforchildren.co.uk
• £186,000 - cost of raising child to age 21 from ‘Cost Of A Child’ survey by LV=
• * - Based on figures from Axa Sun Life with average 7% growth and 1% annual fund management charges.