Saving for your baby

Starting to save as early as possible is a great idea, as it’s estimated to cost £210,000* to raise a child to age 21. When you’ve picked yourself up off the floor, remember that this figure includes 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

This was the Government’s plan to encourage parents to save for their kids’ future, but eight years down the line it’s been axed.  If you’ve got an existing account you can stick with it and continue paying money in; but there’s no more Government top ups or free cash for new born babies.

I’d always suggest getting started with some form of savings for your baby as soon as you can; even if it’s a bank or building society account to pay in any money they’re given when they’re born. Long term this won’t be the best option as interest rates are low right now and some children’s accounts pay less interest than the adult versions but it’s a good start.  And if you can commit to saving a regular amount; even just £10 a month, this will mount up over the years.

Pocket Money Savings Accounts

Most bank’s and building society’s children’s accounts entice you in with freebies like cuddly toys or piggy banks 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. 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 as you shop

Boost your baby’s savings account every time you shop online by registering at kidstart 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, as it all adds to your child’s savings. 

Baby pensions

Ok, it may seem a bit soon to start considering your baby’s retirement 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 children 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.*

*Based on figures from Axa Sun Life with average 7% growth and 1% annual fund management charges.

Savings checklist

  • Fill in form R85 when opening children’s savings accounts to ensure interest is paid tax-free
  • Shop around once or twice 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
  • If your child was lucky enough to be given a child trust fund, go to childtrustfund or call 0845 302 1470 for more information
  • For financial advice on pensions or stock market related investments go to unbiased or call 0800 085 3250 for details of Independent Financial Advisors in your area

 Sources

Half of us save for our child’s future – savingforchildren

*The Neilsen Company 2011