INVESTMENT & SAVINGS PRODUCTS FOR CHILDREN

INVESTMENT AND SAVINGS PRODUCTS FOR CHILDREN

DAN BAXTER | INVESTMENT MANAGER

Every family wants to give a new child the best start in life but are often unaware of the options available to provide a financial head start to the newest family member. Cash is often put away in a standard bank account until needed for one of the big moments in life, but this may mean missing out on the potential for significant growth. In the current environment of almost 0% interest rate, it is important to ensure this money is working hard. Therefore, we assess some of the options available.

JUNIOR ISA The benefits of ISAs are well publicised, with everything held in the ISA being shielded from tax. Stocks and Shares ISAs and JISAs, such as those offered by Redmayne Bentley, can be held on an execution-only basis or managed by an investment manager. Returns depend on investment performance, but all income and gains are shielded from tax. The limit for the 2020/21 tax year is £9,000 and the child can take control of the account when they’re 16, but cannot withdraw the money until they turn 18– although for these two years they are eligible to hold both a JISA and an adult cash ISA, providing a further boost to tax-free savings for two years. However, the money belongs to the child and at age 18 they are entitled to do as they please with it and their parent/ guardian retains no power over the account. It is also worth noting that money added to the ISA cannot be withdrawn until age 18, even in the case of emergency.

JUNIOR SIPP Quite understandably, one of the last thoughts for a new-born is planning for their retirement, but it provides one of the most effective ways of boosting the overall value of the pot – the junior SIPP allowance is £2,880*, which is then boosted by 20% tax relief to £3,600. That’s an instant return, before we consider the potential returns of investing that money for the long-term. However, money put into a junior SIPP cannot be accessed until the child is 55, and it is legally in their name so there is no way to take it back should an emergency require you to do so. Furthermore, pension rules are constantly evolving, and it is likely that they will change again before retirement.

CHILDREN’S SAVINGS ACCOUNT These accounts can be a good way to help children develop good savings habits from a young age. Generally speaking, there’s no tax to pay on the interest generated in these accounts (although this depends on the total amount and your own personal interest income). The money belongs to the child and they take control of the account when they’re 16.

NATIONAL SAVINGS AND INVESTMENTS PREMIUM BONDS Premium bonds are backed by HM Treasury and one of the safest choices around. They provide the chance to win cash prizes ranging from £25 to £1 million every month, although the current average prize rate equates to 1% a year, which is below the usual rate of inflation, meaning that the savings are losing purchasing power. The maximum investment amount is £50,000.

*This amount is the limit for children with no earnings, should your child earn more than this amount they are eligible to increase the pension contributions.

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APPROACH COULD BE THE BOOST YOUR INVESTMENTS NEED

In May 2019 we launched our now award-winning digital Managed Portfolio Service. Two years on, our hands-on, active approach to investing has delivered excellent performance, with £20,000 invested back then grown to £25,889 today*. You too can benefit from the expertise of our professional investment managers. Apply online for an account today and receive your recommended investment strategy instantly.

Investments and income arising from them can fall as well as rise in value. Past performance and forecasts are not reliable indicators of future results and performance.

Minimum Deposit £20,000 / £9,000 for JISAs

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*Invested in our Moderate MPS portfolio at inception in May 2019 and correct to 30.06.21