How to Save and Invest for your Child

One of the questions I get asked a lot by people who reach out to me via email, Whatsapp or my social media page is, “How can I save and invest for my child?”. So I will be answering this question in detail today in this post.

Saving and investing for your child is something that many parents want to do because we want to secure their future. 

We are already thinking about their university and how their lives will be when they start working; how we can help them access opportunities and live comfortable fulfilling lives. 

The fact that a lot of us right now are working, hustling and trying to make ends meet and wishing we had a little bit more help to push us further has got us thinking ahead and asking the big question: “How can I save and invest for my children’s future?”

So, let’s get right into it; there are 5 ways you can save and invest for your children.

1. High-interest Savings Account

You can open a ‘high-interest savings’ account for your child from the day they are born. I did this for my children, and I know several people who did it too so, I know it’s possible to open a bank account for a child even before they have walked.

It’s time to stop the habit of spending money gifted to your children at their christening, baptism and birthdays by uncles, aunties and grandparents. A lot of our parents did that, and we should be changing the narrative. 

So, when your children receive money from their grandparents, uncles and aunties and so on, you should put the money in their high-interest savings account. It will continue to yield interest, and when your child is 18, you can hand it over to them. 

Imagine their joy, knowing that you have saved away money for them, and now they can put it to their education or business. 

You can even decide to give your child access to the money earlier, and with your guidance, they can begin to learn how to manage their money right.

Several banks offer child-specific accounts with higher interest rates than adult savings accounts because they know you are putting money away for a long time, so add this to your list of things to do! 

2. Premium Bonds

I have a video on my Youtube channel where I shared everything you need to know about Premium bonds, so if you need to learn about Premium bonds in detail, click here

Premium bonds are a great way to save for your child especially if you live in the UK. The NS and I, which issues Premium bonds, has been around since before the First World War and has survived two world wars which means Premium bonds and its issuers are a safe and reliable form of investment. Funds in the NSandI funds are also protected by the FSCS UK, which is the same body that protects funds in banks and cooperative societies.

However, I’d like to point out that Premium bonds don’t pay interest on your savings. Instead, they enter you in a lottery every month based on how many premium bonds you have bought; and you stand the chance of winning up to a million pounds! 

You can open one premium bond account per child.

3.    Junior ISAs

A Junior ISA account is tax-free savings account for your children. You can open this account with most banks in the UK. However, there is a limit to the amount of money you can put into the account. For this financial year which extends from 6 April 2020 to 5 April 2021, each child has a saving allowance of 9000 pounds. 

The beauty of this account is that it is completely tax-free, so you don’t pay any tax on dividends and or interest earned.  

However, the thing with Junior ISAs is that you cannot withdraw money paid into the account. You don’t get to withdraw some money for Christmas shopping or to buy birthday presents. Once your money goes in, it can’t come out until your child is 18 years old, when they can have access to it as the account owner. 

So, you have to think about it well before putting bulk money into it, especially if you’re planning to use the account as a way to reduce your tax bill rather than save for your child. You won’t be able to get your money out when you need it. If you are trying to reduce the tax on your savings and investments, you are better off using an adult ISAs account for yourself.

You should also note that you can only have one Cash ISA account per child. That is, you can’t open an ISA account for your child at HSBC and then go to Lloyds bank to open another one.

Now that I have shared three ways you can save for your children; I will now share two tax-saving ways you can invest for children and secure their future.

4.    Junior stocks and shares ISAs

The Junior stocks and shares ISA is an investment account that allows you to invest for your child. It is similar to the Junior ISA in that earnings and dividends on your investment are tax-free, and whatever goes in cannot come out until the account owner is 18 years old. 

The reason why I particularly like the Junior stocks and shares ISA is that your child’s money is working and not just sitting in a savings account and yielding a little bit of interest. The Junior stocks and shares ISA is likely to yield more returns on your money because your money is working hard for you. 

However, you need to bear in mind that because it is an investment account, there are risks! You can get less than you put in due to the movements and performance of the stock market. 

Investment platforms..

You can open a Junior stock and shares ISA with an investment platform like Hargreaves Lansdown, Vanguard, AJ bell you invest etc. 

With these investment platforms, you will be responsible for choosing your investments, i.e. the stocks, shares and funds in which your money is then invested.

Making these investment decisions can be somewhat daunting for many people, especially those who are not knowledgeable about the stock market. I have had parents tell me – ‘this is where I stopped as I didn’t know what to invest in’. 

Fortunately, there is a solution to this problem, and they are called Robo-advisors! 

About robo-advisors…

Robo-advisors are a different kind of investment platform where you do not have to choose your investments yourself. When you register, you are asked a series of questions to determine your risk goals and risk appetite. This information is then used to choose the best investments for you.

Robo advisors also offer Junior stocks and share ISAs. If you are confused about what to invest in for your child, go for a Robo-Advisor platform.

Examples of Robo-advisors where you can open a Junior stocks and shares account are Nutmeg and Moneyfarm.  

Funds in Robo-advisors are also protected by the FCSC up to 85,000 pounds so your money is safe. 

Always confirm that any Robo-advisor or investment platform you’re using is regulated and that your money is protected. You don’t want to suddenly realize that someone has done a Bonnie and Clyde with your hard-earned money. So do your research!

5.    Junior SIPP

A SIPP is a Self-invested personal pension account. It is an account that enables you to make additional investments in a pension. In the case of a Junior SIPP, you are making pension investments for your child. 

The Junior SIPP allows you to invest up to 3600 pounds per child including government tax relief. 

You must also bear in mind that you cannot withdraw money that has been invested in a Junior SIPP. As a matter account your child cannot access the money until they are 57 years old simply because it is a pension account. 

A Junior SIPP is an opportunity to invest in your child’s old age before you get too old to work. It is a way to build generational wealth. 

No matter what career your child has, ensure that they do not spend their old age in total penury. 

And there you have 5 ways to save and invest for your children. I hope this post encourages and motivates you to start investing for your wards today.

Thanks for reading and stay Bulletproof! 

Ronke O.

Published by ronkeodewumi

I am a Chartered Accountant (ACMA, CGMA) and seasoned Management Consultant with about 16 years of experience driving the delivery of strategic solutions to complex problems of global firms. Through my blog, youtube channel, social media, tailored courses and downloadable material, I share information, resources and tips to help you manage your money better, grow your business, progress in your career, thrive in difficult times and create a life that is safe from failure, while being the best version of yourself. You will also find here links to my youtube videos where I share more nuggets to help you achieve and live your dream life. I am based in London, United Kingdom and always happy to connect with you via email (ronkeodewumi@gmail.com), social media or my contact page here.

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