Children’s Savings

[Nick_13]

Good Afternoon,

I have just sorted out my kids Christmas money to deposit into their bank accounts (3.5 and 1.5 years old).

At the moment they have instant access savings accounts that are linked to mine and my partners Lloyd’s current accounts. We can access their accounts at any time to deposit and withdraw money as we see fit. We could blow it on the horses if we were so inclined.

We do not necessarily want or need access to the money but looking at various ISA’s etc I am not keen on the money being locked away until being passed directly on to the kids at 18 or whatever age. I would like to have some say in where the money goes such as towards a first car, traveling or a house deposit so it is desirable that me and my partner still have some control over the money once the time comes. They may need some at 16 for a moped, some at 17 for driving lessons and so on, rather than the whole lump on their 18th birthday.

In the scheme of most people on here the savings are small (3.5k for the eldest 1.5k for the youngest) but we are quite proud we are able to have started them off on the right foot. The money sees no regular input from us; it comes from birthdays, Christmas, Easter and their christening day. I would imagine contributions will slow now for various reasons.

We currently get 1.99% interest on balances up to £5k but this drops off after the limit is reached. Is there a better way we could invest the money maybe by tying it up longer term? without the money defaulting straight over to the kids in the future?

Apologies for the long winded post and thanks in advance for your ideas.

[JulianPH]

Cash is possibly the worst asset class to sit on for this time period (c. 18 years).

Equities with some bond/gilt/property exposure should provide significantly higher long term returns.

I would look into setting up a suitable trust (providing it is cost effective) or simply use a JISA and don't tell them about it until you think they are ready!

[S6PNJ]

We have set up savings accounts for our niece and nephew and are currently just under 10 years in, 8 left to go, for an 18th birthday present (twins). Saving with the Halifax at 1.99% but if we were to change the location, what would be recommended. We pay in every month, but only a small amount - could do a one off annual payment if it makes investing easier. Anything we do has to be independent of needing proof of ID as we don't want mum and dad to know we are planning this, so can't ask for birth certificates etc.

[dogz]

Nationwide are doing 3.5% on a children’s saver or 2.5% for non nationwide customers. You can save up to £5k per year

Agree that stocks and shares are a better long term bet unless interest rates rise significantly

For my kids, myself and my parents invest monthly in some ETF trackers and put any money received for birthday / Xmas etc in their savings account

I always think it’s good to have some cash but a balanced way of saving is best

[Nick_13]

Thank you very much for your input. It seems unanamous that investing through a JISA is the way to go. In my naivety I thought cash in a savings account does the job but if I didn’t invest any more then the pot wouldn’t be worth much by the time they get their hands on it.

I really have no idea about stocks, shares and investments. Would I be able to just open an account as per the one below? Transfer their cash across then leave it to do its thing? I would then drip feed any money they receive as and when?
Or is it going to need more input from me? I know it sounds silly but I am petrified of messing it all up and loosing their money!

[Nick_13]

https://www.fidelity.co.uk/fidelity-special-situat...

Apologies, to go with the above

[JulianPH]

Nick_13 said:

Thank you very much for your input. It seems unanamous that investing through a JISA is the way to go. In my naivety I thought cash in a savings account does the job but if I didn’t invest any more then the pot wouldn’t be worth much by the time they get their hands on it.

I really have no idea about stocks, shares and investments. Would I be able to just open an account as per the one below? Transfer their cash across then leave it to do its thing? I would then drip feed any money they receive as and when?
Or is it going to need more input from me? I know it sounds silly but I am petrified of messing it all up and loosing their money!

Yes, it is that simple.

It might be worth mentioning that the fund you are looking at (whilst being highly regarded and having great long term performance) is UK focused.

Given the time frames available you can easily warrant the higher than average level of risk this fund can take (for higher than average potential for long term rewards), though you may want to consider complimenting it with a global tracker (have a look at Vanguard) for greater diversity.

One final thing, all stock market investments will see times of falls as well as rises. Over the long term the rises (plus the reinvestment of dividends - which the fund can do automatically for you) mean stock markets generally out perform other asset classes though, hence their popularity for investors.

However, if the thought of seeing falls in value makes you very nervous or you consider that when this happens you might pull out (rather than ride through it) then sticking with the certainty of cash is not a bad thing. Yes, you would miss out on the potential stock market returns, but equally you won't have the concerns you do now.

If it were me though I would go for stock market investment every time.

[JapanRed]

Our 1 year old has the following;
- £50 per month from birth into a high risk (level 10) Nutmeg stocks & shares account that’s in my name. Not in a JISA though, not sure if this matters? This has lost 10% since Jan 2018 but will rise again over next 17yrs.
- £100 per month into a Halifax regular saver paying 4.5% (this will mature next month upon which I’ll transfer the £1200 + interest into a HSBC saver which I think is paying 3%. I’ll then open another Halifax regular saver and repeat until she’s 18.

I wanted a mix of stocks and shares and also regular savings, simply because I’d not used shares before so was a little cautious.

[BoRED S2upid]

JapanRed said:

Our 1 year old has the following;
- £50 per month from birth into a high risk (level 10) Nutmeg stocks & shares account that’s in my name. Not in a JISA though, not sure if this matters? This has lost 10% since Jan 2018 but will rise again over next 17yrs.
- £100 per month into a Halifax regular saver paying 4.5% (this will mature next month upon which I’ll transfer the £1200 + interest into a HSBC saver which I think is paying 3%. I’ll then open another Halifax regular saver and repeat until she’s 18.

I wanted a mix of stocks and shares and also regular savings, simply because I’d not used shares before so was a little cautious.

The problem with the nutmeg isa being in your name rather than the child’s is you can’t then have one in your name and pay into both. We have 3 ISAs with HL all of which have a similar mix of funds a joint one for me and the wife and one each for the little ones. They also have a 2% bond each with NSandi plus some premium bonds for fun.

[JulianPH]

BoRED S2upid said:

The problem with the nutmeg isa being in your name rather than the child’s is you can’t then have one in your name and pay into both. We have 3 ISAs with HL all of which have a similar mix of funds a joint one for me and the wife and one each for the little ones. They also have a 2% bond each with NSandi plus some premium bonds for fun.

I get what you are saying, so am being a bit pedantic, but you can't have a joint ISA for you and your wife. They are Individual Savings Accounts!

[Gary29]

dogz said:

Nationwide are doing 3.5% on a children’s saver or 2.5% for non nationwide customers. You can save up to £5k per year

This is exactly what I'm doing for mine, only modest sums so this is the least hassle for me and risk free. A much better financial start than I had in life that's for sure!

[BoRED S2upid]

JulianPH said:

BoRED S2upid said:

The problem with the nutmeg isa being in your name rather than the child’s is you can’t then have one in your name and pay into both. We have 3 ISAs with HL all of which have a similar mix of funds a joint one for me and the wife and one each for the little ones. They also have a 2% bond each with NSandi plus some premium bonds for fun.

I get what you are saying, so am being a bit pedantic, but you can't have a joint ISA for you and your wife. They are Individual Savings Accounts!

Yes top pedant points. It’s in my name but what’s mine is hers and all that.

[JulianPH]

BoRED S2upid said:

Yes top pedant points. It’s in my name but what’s mine is hers and all that.

[chip*]

dogz said:

Nationwide are doing 3.5% on a children’s saver or 2.5% for non nationwide customers. You can save up to £5k per year

Agree that stocks and shares are a better long term bet unless interest rates rise significantly

For my kids, myself and my parents invest monthly in some ETF trackers and put any money received for birthday / Xmas etc in their savings account

I always think it’s good to have some cash but a balanced way of saving is best

Broadly the same approach I have taken for my girl, basically a mixture of cash savings and equity exposure via JISA.

Cash - maxed out the annual limit of the Nationwide Future Saver @3.5%, with the cash balance in the Smart Access @2.5% (will be transferred to the Future Saver account in the new tax year).

JISA / Vanguard - maxed out the annual allowance with the LifeStrategy fund. The annual account fee is only 0.15% which is pretty cheap imo.

[putonghua73]

JapanRed said:

Our 1 year old has the following;
- £50 per month from birth into a high risk (level 10) Nutmeg stocks & shares account that’s in my name. Not in a JISA though, not sure if this matters? This has lost 10% since Jan 2018 but will rise again over next 17yrs.

"High Risk" - means v.little unless you are able to provide details of the fund i.e. asset class(es), managed / passive, total annual charge, etc? You'll also need to be benchmarking performance against FTSE 100 or All-Share Index i.e. a passive tracker (similar or lower risk) and/or Gilts [UK Govt Bonds] - both should (usual caveats apply) be better than cash.

My mother and her partner have started a children's saving account for my Little Man. My partner and I will also add to this. At some stage, I want to transfer to long-term investing (c15-16 years) and will move to a passively tracked global share tracker i.e. 50% UK / 50% Global (default - although will investigate region breakdown) with accumulated dividends since we'll be drip-feeding, thus will benefit from pound-cost averaging over the investment period (peaks and troughs). Annual fee structure around 0.35%.

I follow the KISS principle ("Keep It Simple, Stupid") for these kind of SWAN ("Sleep Well At Night") investments. That said, I recently made a schoolboy error with my recent change of pension tracker. I was concerned at region risk, principally UK with the increasing likelihoold of a no-deal Brexit - passively share tracker index fund w/ Fidelity UK 50% / Global 50%. Switched to Global share tracker index fund excl. UK and absent-mindedly didn't check the regional breakdown when I bought. A week or two later I performed my due diligence after the event (*facepalm*) to find out that it was 65% US! In terms of regional balance, worse than my original tracker - Brexit considerations aside!

Savings accounts are good to establish discipline and for short-term requirements (will require capital within 2 years or so). Anything else and will be eroded by inflation.

[Nick_13]

Thank you very much for the input and for holding my hand through this! I have an unwell relative at the moment and depending on the outcome (91 years old) it may change my approach to savings/investments due to any inheritance. I think I will continue as I am for 2019 to see what happens then make a decision towards the end of the year.

Ultimately I think I will transfer their savings into a Vanguard LifeStrategy 60 JISA for middle of the road risk vs reward and leave it alone until they are old enough to use it wisely. (Would I be better off with 80-100% equity for the 15+ year timespan?)

https://www.vanguardinvestor.co.uk/investing-expla...


Also with any further money would I be better paying in additional lump sums of £2-300 at birthday and Christmas times or spreding it over the year at say 40-50 per month? I’m not sure if this makes any difference? And of course I will select dividends to be reinvested. Hopefully this will see them with a few more quid that just having it sitting in a Lloyd’s account.

Thanks again, Gents!

[putonghua73]

Lump sum as opposed to drip feeding smaller amounts is a completely different kettle of fish because the 'Buy' price matters much, much more i.e. locked-in at that price. With drip-feeding regular amounts over a longer period of time, you're buying into pound cost averaging theory i.e. doesn't matter whether you buy at top, middle or bottom because over the investment period the peaks & troughs willshould broadly balance at an average.

Amended language to reflect lack of certainty.

It is better to drip-feed less regularly but with a bigger contribution than to drip-feed regular but smaller amounts due to trading costs. I wouldn't drip-feed at a greater frequency than each quarter (I'd go for twice a year contributions - dependent on contribution size) due to trading costs.

In terms of balance allocation, there is nothing wrong with a balanced approch i.e. 50% bonds / 50% for middle of the road. I cannot remember the statistics but there only a few cases where investors would have lost money over a 10 year period (historical data looking at each 10 period over a long period of time on a annual basis i.e. 1951-1961, 1952-1962, etc). Read all of the key facts for each fund to understand:
- what type of bonds (gilts, corporate, etc)
- what type of equities (index fund, ETF, etc)
- region allocation
- fund size (10s of millions, 100s of millions, and billions)
- active management or passive
- total annual cost

I like to keep things simple and am biased against managed funds - prefering passively managed ones. Whatever choice you decide, make sure that you fully understand what type of fund you are buying, whether it is actively managed or passive, and total annual cost. The latter and inflation make a big, big difference to total expected returns over the investment period.

The key here is how others will perceive your handling of a relative's investment - people get too wound up in the short-term (noise) and not the long-term (when it matters).

Edited by putonghua73 on Friday 4th January 15:06

[Mopey]

Nick_13 said:

Thank you very much for the input and for holding my hand through this! I have an unwell relative at the moment and depending on the outcome (91 years old) it may change my approach to savings/investments due to any inheritance. I think I will continue as I am for 2019 to see what happens then make a decision towards the end of the year.

Ultimately I think I will transfer their savings into a Vanguard LifeStrategy 60 JISA for middle of the road risk vs reward and leave it alone until they are old enough to use it wisely. (Would I be better off with 80-100% equity for the 15+ year timespan?)

https://www.vanguardinvestor.co.uk/investing-expla...


Also with any further money would I be better paying in additional lump sums of £2-300 at birthday and Christmas times or spreding it over the year at say 40-50 per month? I’m not sure if this makes any difference? And of course I will select dividends to be reinvested. Hopefully this will see them with a few more quid that just having it sitting in a Lloyd’s account.

Thanks again, Gents!

Hi is there any indication of the costs of one of these? I can see the percentage but there are further costs that seem to be incurred.
I am looking into this for my son instead of a standard saving account but we don’t have huge amounts of cash. Is it still worth it with smaller amounts like a few hundred?

[Craikeybaby]

As I am not using my full ISA allowance, I am using a portion of it for my son - I know what I was like at 18, so would rather have some control of when he gets the money. He does also have a normal savings account that my wife manages.