Saving money for your children is a great way to give them a head start later in life.

Whether you are trying to help them save for a new car, reduce the strain of university tuition or gift them a deposit for their first home, every parent wants to provide their children with the best start to their financial life.

But how much money is enough? In this article, we will be exploring some of the most common expenses that parents save for and some of the best children’s savings accounts to help you achieve your goals.

Discovering Savings Accounts for Kids

When we start saving for our children, the first question we need to ask ourselves is ‘what are we saving for?’.

Having a clear goal to work towards is the best way to begin saving, and can help keep you motivated during difficult periods.

Once we have identified our savings goals, we can then start to consider the best savings account for kids to help give them the best start to their financial future. 

When it comes to saving for children, some of the most common reasons for wanting to save are:

University

One of the most common reasons parents want to save for their children is to reduce the financial impact of attending university.

The annual cost of a university degree has increased to £9,535 a year, which means that a standard 3-year degree will now cost £28,605. In addition, many students take out additional maintenance loans to cover the cost of housing and living costs, which means that a UK graduate can leave university with close to £60,000 in debt.

Many parents want to avoid their children facing such a significant burden immediately after completing their degree and want to help by providing financial support to reduce their reliance on student loans, thereby leaving them owing less when they enter the workforce.

Although it may be challenging to save up the full value of a student loan in time for university, many parents start by attempting to save £20,000 to help their children with university costs.

This amount will help provide a financial cushion for your children, enabling them to graduate with fewer debts than some of their peers.

First Home

Helping your child purchase their first home is a dream for many parents. The UK housing market is notoriously tricky for first-time buyers, and helping your child take their first step onto the property ladder is an investment in their quality of life that is likely to pay dividends for years to come.

The advantages of helping your child buy their first home are obvious: not only does it secure them a place to live, potentially closer to their workplace or school, but the value invested in the property is also not lost. It can be recouped when and if the house is eventually sold.

The average house price in the UK has increased dramatically in the last few decades, which means that more children than ever will need their family’s support if they want to purchase a property.

If you were hoping to gift your child a deposit for a home, setting a goal of £30,000 would give them a very strong head start, especially if they can increase this amount with their own savings or income.

General Expenses

Regardless of what your child’s goals are, making the transition from childhood to adulthood can be a difficult process. 

Whether you want to gift your child an emergency fund, money for driving lessons or a budget for travelling before settling down, there are plenty of ways that money you save today can help your child later in life.

When discussing general expenses, it is impossible to predict how much money your children will need. However, £5,000-£10,000 would help provide a strong start to adulthood and help ease your child into working life.

Choosing A Children’s Savings Account

Choosing the best children’s savings account is a great way to maximise your contribution to your child’s future. We will be exploring some of the most common children’s account types to help you choose what account is best for you and your family.

Junior ISA (JISA)

The Junior ISA is one of the most popular types of children’s savings accounts.

At Sheffield Mutual, we offer two different types of Junior ISA, our Investment Junior ISA and our Sustainable Junior ISA.

These types of accounts are popular for several reasons: the contribution cap is high, at £9,000 per tax year, and like all ISAs, any interest or profit made from this account type is tax-free (as long as you remain within the contribution limit). 

A child can opt to take control of this type of account at the age of 16. However, this account will not mature until the child turns 18, at which point they can roll the account over into an adult ISA or choose how to use the invested money.

Another popular reason for choosing a JISA is that, once opened by a parent or guardian, anyone can contribute. Grandparents, godparents, and family friends can all contribute directly to a JISA, making it a popular choice for saving for your children.

Finally, there is the type of ISA you can have. Broadly speaking, there are Cash ISAs and Stocks and Shares ISAs. Cash ISAs are generally more stable in return for less potential profit, whereas Stocks and Shares ISAs can be more volatile, but could allow the money invested to grow at a higher rate, depending on market conditions.

If a JISA is opened on behalf of a child at birth, it allows the account to capture the maximum amount of profit before the child gains access, making Stocks and Shares ISAs popular choices for JISA accounts. At Sheffield Mutual, both of our JISAs are Stocks and Shares ISA, allowing your money the potential to grow as much as possible before maturity.

Children’s Tax Exempt Savings Plan (TESP)

If you have maximised your contribution to your child’s JISA but still want to save more money in a tax-efficient way, you may want to consider opening a Children’s Tax Exempt Savings Plan.

A TESP is a tax-efficient way of saving for your child’s future, available exclusively through friendly societies. When you open a Children’s TESP, you can choose a term lasting between 10 and 25 years. You can also decide whether you want to contribute monthly or annually, with an annual limit of £270 and a monthly range between £5 and £25.

Although the £270 limit is far below the JISA’s current £9,000 annual limit, a Children’s Tax Exempt Savings Plan can be a great option if you have already filled up your child’s JISA and are looking to save some extra money towards their future.

Children’s Regular Savings Plan

After exploring  Junior ISAs and Children’s Tax Exempt Savings Plans, you may want to start considering a Children’s Regular Savings Plan.

Unlike a TESP, a Regular Savings Plan does not provide an additional tax-free allowance. However, a Regular Savings Plan has a much higher contribution limit than a TESP, as you can choose to contribute between £5 and £1000 a month (or £10,000 annually) for between 10 and 25 years.

While choosing a JISA or a Children’s TESP might be a good idea, after reaching the contribution limits on these accounts, a Children’s Regular Savings Plan might be the next step on the path to helping your child in the future.

Choose A Smart Way To Save With Sheffield Mutual

If you are looking to save to help a child with university fees, a deposit, or general life expenses, there are multiple savings accounts to choose from.

The reality is that most families will not have an additional £9,000 annually to contribute to their children’s savings account, so for the majority of people, simply opening an Investment Junior ISA and making regular contributions is a strong plan to help your child.

No matter what your goals are for your children, Sheffield Mutual want to help you achieve them. Consider browsing our range of children’s savings accounts to find the best solution to support your child’s financial development. 

If you have any questions about our products or are interested in becoming a member of Sheffield Mutual, please feel free to contact us online or by calling 01226 741 000. A member of our friendly and helpful team will be happy to answer any of your questions.

This article provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.