saving for kids long term...advice please.

[fastbikes76]

Hi fellow PH guru's.

In very simple idiot speak, what is the best way to save for my kids ? I currently save a £1000pa each for my 10 year old twins which will eventually go to them when they are in a position to buy a house, hopefully very early 20's. At the moment the money just goes into a Natwest savings account opened in their names. I'm very risk adverse when it comes to finances so would rather it sat in a savings acc earing nothing, than in an investment where there is any risk of losing funds. Historically I've had to dip into the funds such as when we bought our first house, but now there will be no need, so money can go into an account with limited access if that's a better option.

Suggestions on how to maximise their savings ?

Many Thanks
Fb

[chip*]

For simple bank saving accounts, take your pick from list below. Article last update in May so some rates may be out of date though.

https://www.moneysavingexpert.com/savings/child-sa...

If you decide to take some risk for a higher return (but no guarantee!), you could consider a share ISA (using your annual limit) or a Junior ISA (using child annual limit which legally transfer to their ownership at 18). Sample investment would be the Vanguard LS with total annual fees sub 0.5%. Each funds are clearly marked with the risk rating to suit all types of investor.

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

Hope this is helpful to you.

Edited by chip* on Sunday 24th November 17:18

[cloud_dog]

fastbikes76 said:

Hi fellow PH guru's.

In very simple idiot speak, what is the best way to save for my kids ? I currently save a £1000pa each for my 10 year old twins which will eventually go to them when they are in a position to buy a house, hopefully very early 20's. At the moment the money just goes into a Natwest savings account opened in their names. I'm very risk adverse when it comes to finances so would rather it sat in a savings acc earing nothing, than in an investment where there is any risk of losing funds. Historically I've had to dip into the funds such as when we bought our first house, but now there will be no need, so money can go into an account with limited access if that's a better option.

Suggestions on how to maximise their savings ?

Many Thanks
Fb

I don't like guiding people who are obviously risk adverse in to investments and with the children being 10 years old perhaps now is not an ideal time to look in to investments (time remaining, risk adverse, possibly nearing the end of an extended bull run, yada yada yada). If you started doing this just after birth it really would have been the best thing you could have done for them. As it is you may not recognise of like this but you have simply wasted the savings money as it has been eroded by inflation.

We are where we are so a couple of points:

1) I've just looked up the NatWest childrens saving account and the only one I can find is the 'First Saver', which offer interest of 0.85%
2) As you and your wife are contributing this money you need to be aware that there is a HMRC rule regarding earning more than £100 interest on parents money in a childs account.

Regarding HMRC £100 tax rule, you get two x £100 allowance; yourself and your wife. Any interest exceeding this amount is liable for tax at your highest rate of tax.

What is the best you can do with the savings.... Move it. For example Nationwide Future Saver paying 3%. There are other options around bank accounts paying high interest on limited amounts, i.e. up to £3k etc.

Link for Nationwide Future Saver: https://www.nationwide.co.uk/products/savings/futu...

The other thing to think about is that life is rarely black and white / all or nothing. I'll use our DD as an example of what you could do if you choose to / feel comfortable doing so:

1) She has a stocks and shares JISA (her name). We contributed to this from day one and we have subsequently stopped adding to it (more than enough in there)

2) She has a savings account in her name (bare trust) (funnily enough the Nationwide one) which started out with gifts. We added to this once the investments (JISA) were of a sufficient level

3) She had a savings account now a youngsters current account, she puts any money she receives / earns in to it

4) We use our general investment accounts (not ISA) to hold investment for the benefit of her.

I was going to move the S&S JISA out of stocks in to a cash JISA as she nears 18 but I am now thinking I will leave the investments to run, and hopefully she will be ok to move these in to a LISA at the appropriate time. The investments/money in option 4 will either be used to help her or be given to her at some point (depending on how things go).

[williaa68]

For the last twelve years or so I have invested into the foreign and colonial investment trust via their children’s ISA. I haven’t benchmarked the returns over that period but I’m very happy with the absolute performance. FCIT isn’t a rocket ship like Scottish mortgage but it has done just fine.

[Fonzey]

cloud_dog said:

1) She has a stocks and shares JISA (her name). We contributed to this from day one and we have subsequently stopped adding to it (more than enough in there)

Any recommendations for a S&S JISA? I've just opened an NS&I Cash JISA for ours who was born a month ago, 3.25% is a damn site more than I'm getting on my cash ISA(!) but we're not particularly risk averse and would be happy to experiment a bit.

We're going to open with the gift money we(she) received and then trickle in probably half of the yearly allowance each year until 18.

[cloud_dog]

Fonzey said:

Any recommendations for a S&S JISA? I've just opened an NS&I Cash JISA for ours who was born a month ago, 3.25% is a damn site more than I'm getting on my cash ISA(!) but we're not particularly risk averse and would be happy to experiment a bit.

We're going to open with the gift money we(she) received and then trickle in probably half of the yearly allowance each year until 18.

Investment Trusts used to be very useful in this regard as they offered a low cost option for making regular investments, e.g. from £25 with no dealing charges. That is how my DD CTF (as was) commenced. However in the recent past a lot of investment trust companies have moved away from offering this regular investment feature now.

One option might be to run a monthly regular savings account for a year and then deposit that in to the JISA and make the payment. I believe Halifax offer a 12 month KIds Monthly Saver offering 4.25% atm. Unsure what the monthly contribution limit is, you would need to double check. Eventually our DD JISA ended up in the Jarvis X-O JISA account where I could make purchases for £5.95.

Link for Halifax account: https://www.halifax.co.uk/savings/kids/kids-monthl...

[cloud_dog]

williaa68 said:

For the last twelve years or so I have invested into the foreign and colonial investment trust via their children’s ISA. I haven’t benchmarked the returns over that period but I’m very happy with the absolute performance. FCIT isn’t a rocket ship like Scottish mortgage but it has done just fine.

We did much the same for our DD.

I've also done something similar for my nephews/nieces using Ballie Gifford (using MNKS). I chose this option as, at the time, I was unsure how many nephews/nieces I might end up with and so I thought a single investment account that can be 'reasonably' equally divided would make more sense than individual accounts.

Unfortunately BG have also stopped doing the regular investment option and have transferred their business to HL.

[Cheib]

Look into a children’s SIPP....yes they can’t get access to it to buy a house but it’ll mean they won’t have the need to contribute to their pension in their 20’s that others will. The main driver for doing a SIPP is that it gets basic rate tax allowance so an additional contribution from HM Govt up to about £3k per annum.

[chip*]

Cheib said:

Look into a children’s SIPP....yes they can’t get access to it to buy a house but it’ll mean they won’t have the need to contribute to their pension in their 20’s that others will. The main driver for doing a SIPP is that it gets basic rate tax allowance so an additional contribution from HM Govt up to about £3k per annum.

+1
Both my girls have a Nationwide Future Saver account @ 3.5% which are maxed out, but I plan to invest £2880 (with tax relief = £3,600) for each of my 2 girls over the next 20 years. With 50+ years growth on investment, I hope it gives them a comfortable start to their retirement days!

[cloud_dog]

There are pluses and minuses for starting a pension for a child. My opinion, and I recognise that everyone's circumstances and opinions vary, is that a pension for a child is bottom of the totem pole, considered when other financial options / provisions have been actioned / undertaken.

Full disclosure, I have started a pension for my DD, although it is there primarily for me to know that something is in place, to facilitate flexibility should we need to (i.e. early IHT planning etc), and it is currently only receiving the bare minimum (£25pm).

The argument against a child pension is based on two premises:

1) It may not be the best option to reduce the available LTA when the child is only gaining BRT relief, i.e. if the adult child may become a HRT payer they could make more beneficial use of the tax relief at 40% rather than 20%.

2) For a BRT payer a LISA is more cost effective than a pension. This is due to all of the LISA monies being available free of tax at age 60

3) Assuming the child adult is earning there is always the opportunity to contribute money in to a pension later on in life.

I appreciate that these considerations are somewhat a 'first world' thing, and may only affect some children as they grow through adulthood but, those are the considerations.

Our main focus for the DD will be to ensure the LISA is maximised. We may or may not continue with contributions in to the SIPP.

There are lots of other things to consider, for example monies within a pension are excluded from and benefit calculations (should that ever arise) whereas a LISA is counted as an available asset. As with most things in life it is a balancing act.

[ILikeCake]

cloud_dog said:

There are pluses and minuses for starting a pension for a child. My opinion, and I recognise that everyone's circumstances and opinions vary, is that a pension for a child is bottom of the totem pole, considered when other financial options / provisions have been actioned / undertaken.

Full disclosure, I have started a pension for my DD, although it is there primarily for me to know that something is in place, to facilitate flexibility should we need to (i.e. early IHT planning etc), and it is currently only receiving the bare minimum (£25pm).

The argument against a child pension is based on two premises:

1) It may not be the best option to reduce the available LTA when the child is only gaining BRT relief, i.e. if the adult child may become a HRT payer they could make more beneficial use of the tax relief at 40% rather than 20%.

2) For a BRT payer a LISA is more cost effective than a pension. This is due to all of the LISA monies being available free of tax at age 60

3) Assuming the child adult is earning there is always the opportunity to contribute money in to a pension later on in life.

I appreciate that these considerations are somewhat a 'first world' thing, and may only affect some children as they grow through adulthood but, those are the considerations.

Our main focus for the DD will be to ensure the LISA is maximised. We may or may not continue with contributions in to the SIPP.

There are lots of other things to consider, for example monies within a pension are excluded from and benefit calculations (should that ever arise) whereas a LISA is counted as an available asset. As with most things in life it is a balancing act.

Your point 1. The point is that they get +20% now, and compound interest on that for a lot more years. Rather than a potential +40% at some point years in the future.

But more importantly, what the fk is a DD?

[chip*]

cloud_dog said:

good stuff.

Some valid points.
As noted above, SIPP is available and guaranteed at birth so instant uplift and add in 50-60 years of growth (donor also benefit as part of wealth disbursement / estate planning too)
LISA is good value, but I believe only permitted between age 18 and 39, so you effectively lose investment growth for 18 years.

Just shows there are different ways to skin a cat based on your individual circumstance

[cloud_dog]

ILikeCake said:

Your point 1. The point is that they get +20% now, and compound interest on that for a lot more years. Rather than a potential +40% at some point years in the future.

Yes, as mentioned it is a consideration and I wasn't saying one option is correct and the other is wrong, merely things to consider.

ILikeCake said:

But more importantly, what the fk is a DD?

Dependant daughter.... my bad

[Cheib]

ILikeCake said:

cloud_dog said:

There are pluses and minuses for starting a pension for a child. My opinion, and I recognise that everyone's circumstances and opinions vary, is that a pension for a child is bottom of the totem pole, considered when other financial options / provisions have been actioned / undertaken.

Full disclosure, I have started a pension for my DD, although it is there primarily for me to know that something is in place, to facilitate flexibility should we need to (i.e. early IHT planning etc), and it is currently only receiving the bare minimum (£25pm).

The argument against a child pension is based on two premises:

1) It may not be the best option to reduce the available LTA when the child is only gaining BRT relief, i.e. if the adult child may become a HRT payer they could make more beneficial use of the tax relief at 40% rather than 20%.

2) For a BRT payer a LISA is more cost effective than a pension. This is due to all of the LISA monies being available free of tax at age 60

3) Assuming the child adult is earning there is always the opportunity to contribute money in to a pension later on in life.

I appreciate that these considerations are somewhat a 'first world' thing, and may only affect some children as they grow through adulthood but, those are the considerations.

Our main focus for the DD will be to ensure the LISA is maximised. We may or may not continue with contributions in to the SIPP.

There are lots of other things to consider, for example monies within a pension are excluded from and benefit calculations (should that ever arise) whereas a LISA is counted as an available asset. As with most things in life it is a balancing act.

Your point 1. The point is that they get +20% now, and compound interest on that for a lot more years. Rather than a potential +40% at some point years in the future.

But more importantly, what the fk is a DD?

Planning 50 years forward based on something like the LTA isn’t sound logic...it’s only been in place for something like 10 years and almost certainly won’t be around when our kids retire. Also sit is not the children utilising the the tax relief it’s their parents/grandparents. The compounding on that tax relief for say 15 years must be pretty powerful.

My premise is that you simply don’t know what the legislative framework is so in that situation Ibelieve diversity is your friend.

[cloud_dog]

Cheib said:

Planning 50 years forward based on something like the LTA isn’t sound logic...it’s only been in place for something like 10 years and almost certainly won’t be around when our kids retire.

Yes possibly, although I think our great, great, great, great grandparents believed the same of income tax when it was re-introduced. I think we need to plan on what we know to be true as none of us can foresee the future and your hypothesis could be as accurate or as inaccurate as mine, we simply adjust our plans as new information is presented.

Cheib said:

Also sit is not the children utilising the the tax relief it’s their parents/grandparents. The compounding on that tax relief for say 15 years must be pretty powerful.

Although, I suppose it could be argued that the additional compounding simply increases the tax to be paid on withdrawal. Which is what a pension does, it defers your taxation (excluding the 25 % TFLS). I'm not arguing against your points per se. Compounding is good, whichever vehicle you use.

Cheib said:

My premise is that you simply don’t know what the legislative framework is so in that situation Ibelieve diversity is your friend.

Absolutely, agree 100%.

[fastbikes76]

Thank you all for the advice, for the immediate I am going to open a kids savers account with Halifax offering 4.5% and then look into long term options more throughly.

Many thanks
Fb

[Douglas Quaid]

cloud_dog said:

fastbikes76 said:

Hi fellow PH guru's.

In very simple idiot speak, what is the best way to save for my kids ? I currently save a £1000pa each for my 10 year old twins which will eventually go to them when they are in a position to buy a house, hopefully very early 20's. At the moment the money just goes into a Natwest savings account opened in their names. I'm very risk adverse when it comes to finances so would rather it sat in a savings acc earing nothing, than in an investment where there is any risk of losing funds. Historically I've had to dip into the funds such as when we bought our first house, but now there will be no need, so money can go into an account with limited access if that's a better option.

Suggestions on how to maximise their savings ?

Many Thanks
Fb

I don't like guiding people who are obviously risk adverse in to investments and with the children being 10 years old perhaps now is not an ideal time to look in to investments (time remaining, risk adverse, possibly nearing the end of an extended bull run, yada yada yada). If you started doing this just after birth it really would have been the best thing you could have done for them. As it is you may not recognise of like this but you have simply wasted the savings money as it has been eroded by inflation.

We are where we are so a couple of points:

1) I've just looked up the NatWest childrens saving account and the only one I can find is the 'First Saver', which offer interest of 0.85%
2) As you and your wife are contributing this money you need to be aware that there is a HMRC rule regarding earning more than £100 interest on parents money in a childs account.

Regarding HMRC £100 tax rule, you get two x £100 allowance; yourself and your wife. Any interest exceeding this amount is liable for tax at your highest rate of tax.

What is the best you can do with the savings.... Move it. For example Nationwide Future Saver paying 3%. There are other options around bank accounts paying high interest on limited amounts, i.e. up to £3k etc.

Link for Nationwide Future Saver: https://www.nationwide.co.uk/products/savings/futu...

The other thing to think about is that life is rarely black and white / all or nothing. I'll use our DD as an example of what you could do if you choose to / feel comfortable doing so:

1) She has a stocks and shares JISA (her name). We contributed to this from day one and we have subsequently stopped adding to it (more than enough in there)

2) She has a savings account in her name (bare trust) (funnily enough the Nationwide one) which started out with gifts. We added to this once the investments (JISA) were of a sufficient level

3) She had a savings account now a youngsters current account, she puts any money she receives / earns in to it

4) We use our general investment accounts (not ISA) to hold investment for the benefit of her.

I was going to move the S&S JISA out of stocks in to a cash JISA as she nears 18 but I am now thinking I will leave the investments to run, and hopefully she will be ok to move these in to a LISA at the appropriate time. The investments/money in option 4 will either be used to help her or be given to her at some point (depending on how things go).

Guys, it’s risk averse.

[fastbikes76]

Douglas Quaid said:

Guys, it’s risk averse.

The main reason being purely I don’t understand most of the options mentioned. However I now have a few things I can look into and carry out some research on while I use the 4.5% kids saver.

Fb

[cloud_dog]

fastbikes76 said:

The main reason being purely I don’t understand most of the options mentioned. However I now have a few things I can look into and carry out some research on while I use the 4.5% kids saver.

Fb

FB, I would suggest you move the existing NatWest account while you consider options. The Nationwide is good.

[crusty]

Hi, I would like to jump on this thread with a similiar question.

My daughter is turning 18 next month and has an account with about £1600 that will become available to her.

I have spoken to her and she is happy to invest it rather than spend it on shoes and clothes

My thoughts are this..

Put the £1600 in a Nutmeg stocks and shares ISA (recommended by money saving expert)

Open a Help to Buy ISA and put a £1 in it.

In say 8 or so years, put whatever the £1600 has grown to into the HTB ISA and use as a deposit for a home

If she is able to save during this period, pay into the Nutmeg ISA

Does the above make sense, or have I missed/not understood something?