| Savings and Deposit accounts |
You can open a children’s savings account with a bank or building society on the high street or by using the internet. You can compare accounts and the interest rates they offer online and in the national press.
Don’t forget to fill in an HM Revenue & Customs form, which you can get from the bank or building society, as it will enable your child to receive interest free of tax.
Deposit accounts are straightforward and offer easy access to the money. The risk to your child’s savings is minimal if you choose a UK bank or building society and save in sterling.
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| National Savings |
Products offered by National Savings & Investments and backed by the Government, they are mostly tax-free and aim to provide capital security. The returns from them, on the other hand, can hardly be described as dazzling.
- Children’s Bonus Bonds can be bought for children under 16. The minimum investment is £25 and the maximum is £3,000 per bond issue. Your money remains invested for five years and the bonds receive a fixed rate of interest for the term, plus a guaranteed bonus.
- Premium Bonds are also a popular gift for children. A monthly draw awards prizes to holders of Premium Bonds, including a £1 million prize and numerous other prizes ranging from £25 to £100,000. The minimum investment is £100 and the maximum is £30,000. The rate of return depends entirely on how often your Bonds win in the draws.
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| Friendly Societies |
They are mutually owned by their customers. They offer tax-free savings plans, which can be taken out by parents or grandparents on behalf of children. You are allowed to pay in up to £25 per month for a minimum period of 10 years free of tax.
While the investment remains tax-free, if you cash in before the end of the term you may suffer a penalty for leaving early. In some cases, you may not even get back what you have put in.
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| Pensions |
A pension fund can be taken out for a child, which can attract tax relief on contributions even if you’re not a taxpayer. Currently you can save up to £3,600 gross each tax year – costing you just £2,880 net, to which the Government adds tax relief.
Due to the nature of pensions, the big disadvantage is that your children can’t access the money until they reach age 55.
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| Shares |
Although children cannot hold shares in their own name until they are 18 (16 in Scotland), you can buy shares and hold them on behalf of a child. Deciding which shares to buy requires a lot of careful research and specialist knowledge, which few people have.
While you could make good returns you could also lose money if the stock market performs badly or the company - whose shares you have bought - does not perform well.
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| Pooled Funds |
You can gain access to a wide range of shares by choosing a pooled fund such as an investment trust, unit trust or open-ended investment company (OEIC). All of these allow you to reduce risk by spreading your money over a number of companies.
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| Children's investment plans |
Some investment managers offer children’s investment plans featuring a selection of investment trusts and/or funds. You can usually invest lump sums from as little as £100 or monthly amounts from as low as £25.
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| Individual Savings Account (ISA) |
Investment managers often offer individual savings accounts (ISAs), which are tax-efficient and can hold pooled funds. Currently, you can invest up to £11,280 per tax year; however, as children are not allowed to hold traditional ISAs in their own name (but see JISAs), you’d have to use your own ISA allowance for this.
With an ISA you can decide when and how your children receive the funds invested in them, but you should regard them as a long-term investment because stock market values can fluctuate in the short term.
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| Junior ISA (JISA) |
Junior ISAs (JISAs) have been available since 1 November 2011 as the successor to Child Trust Funds (CTFs).
Visit our Junior ISA page for more details.
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| Child Trust Fund |
The Child Trust Fund (CTF) is a long-term savings and investment account for children. Every child born between 1 September 2002 and 2 January 2011 was eligible for a voucher from the Government to start their account. Children outwith these dates may be eligible for a JISA.
The maximum that can be contributed each year will be raised in line with JISAs and the child will not be able to access the money until they turn 18. At this point he or she may spend the proceeds as they wish or reinvest them.
For more information about the CTF, see www.childtrustfund.gov.uk.
Please note that Baillie Gifford does not offer a CTF.
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