8 May 2019
Saving for your child’s future
As parents, it is only natural to want to provide the very best possible start and future for your child.
Saving for children is at the forefront of a lot of parents’ minds, but with recent economic uncertainties, saving can seem more like a luxury rather than a necessity.
Saving for your child shouldn’t be a scary concept, the key is to make sure that you have enough money to support them through the various stages of their life journey. Whether that is helping them to purchase their first car, pay their university fees, contributing towards their wedding or even for a house deposit, these things all come around a little more quickly than we'd like!
Depending on which type of plan you choose, you'll be earning bonuses either based on the amount you invest, the guaranteed final amount or as is the case with the Junior ISA, the amount you invest plus bonuses.
But with so many different choices, this can be confusing. The key is to choose which one is right for you and your circumstances.
Here at Sheffield Mutual we like to make life easy for you so we've given you a brief overview of our Children's Savings Plans below.
If you are still struggling to decide which one is right for you, our handy Product Selector Tool can help you to narrow down your options. You should always read the full product literature before making your final decision.
Tax Exempt Savings Plan (TESP)
One of our most popular plans is the Tax Exempt Savings Plan. You can start saving from as little as £5 per month (up to £25 per month) and choose a term between 10 – 25 years so that the plan will mature at a time when you think they’re old enough and wise enough to manage the proceeds properly! TESPs are popular with parents and grandparents as it is a great way to save small regular amounts to build up a lump sum and helps to get you into the habit of saving without “dipping in”. This is an extra tax-free allowance in addition to ISA/JISA allowances, but not many people know that they even exist. Find out more. If you want to save more than £25 per month, you could also consider the Regular Savings Plan.
If you encash the policy early, you may get back less than you have paid in.
Investment Junior ISA (JISA)
JISAs could be an ideal way to build up a tax free lump sum to give young people a great financial start in life.
The minimum investment amount is just £10 per month, or £100 in a single premium. Once opened by the parent/guardian, payments can be made by anyone including other family members and friends. Your child will be able to withdraw their money on their 18th birthday, or it can automatically roll over into an adult ISA.
This account is available to all children under the age of 18 who do not already have a Child Trust Fund (CTF), or if your child holds a CTF it could be transferred. JISAs are more flexible than the TESP as you can make “top up” payments at any time, so it is ideal for birthday/Christmas money (minimum of £50).
In certain circumstances your capital is at risk.
The Investment Bond could be ideal if you have a single lump sum that you would like to invest for a child for a minimum of five years to allow them to receive a guaranteed minimum return plus bonuses (bonuses are not guaranteed). You could start an Investment Bond today with a minimum amount of just £1,000 and they’ll receive a guaranteed return of at least 103% of your original investment after five years. Talk about a win : win situation! The bond is open-ended and can be left to run until the child needs the funds – as the proposer of the plan, you decide when they get the funds.
If you encash the policy in the first five years, you may get back less than you have paid in.
Any child born in the UK between 1st September 2002 and 2nd January 2011 should have been issued with a voucher from the Government. Vouchers were worth £250 or £50, depending on when the child became entitled.
The voucher enabled the parent/guardian of the child to choose a provider for their child’s CTF. If the voucher was not used before the expiry date then the Government allocated these accounts to various product providers, to ensure the children didn’t miss out on their policy.
You can no longer open a new CTF as all the Government vouchers have now expired however, you still have the option to transfer the CTF to a different provider or transfer the amount to a Junior ISA.
This blog provides generic information and opinions of the writer and should not be relied upon for making investment decisions. No advice has been provided by Sheffield Mutual. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should 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. Any reference to taxation is based on the writer’s understanding of current tax legislation and practice, which could change in the future.