saving money for children

Can you set up an investment account for a child?

After working in financial services for a number of years, one of the things I’ve become aware of is how ill-informed people are about the options available to them when it comes to setting up savings or investments for a child.

Read on to find out more information about Child Savings.

It’s very understandable, and I was very much the same myself before I started working in the industry.

However, a parent can kick off an investment plan for a child that could build to a sizable sum for them to give them a kick start in adult life.

The money could be a great help if put towards university fees, a deposit for a house, a travelling fund or a first car.

child savings

Child Investments

But how to get started with an investment?

It’s important firstly, to understand the difference between saving and investing.

A savings account will usually advertiser an interest rate. That is the guaranteed growth you will see for your plan, perhaps over a specified amount of time. 

Low-interest rates

In these days of super low-interest rates, a plan provider may offer an introductory rate to make the deal seem more attractive.

The current Bank of England base rate is set at 0.75% (November 2019), and whilst that’s an increase over the all-time low of 0.25%, it’s still extremely low in historic terms, and is the reason why savings accounts are such poor performers over the long term.

Indeed when charges and inflation are factored in, utilising a savings account over the long term could actually lose money in real terms.

That’s not too say savings accounts don’t have their place. For a short term savings goal (less than five years), a fixed interest rate can guarantee that the value of your fund will never fall.

However, over the longer term (5 – 10 years and above), an investment could offer the chance for a child’s money to grow.

As such, a newborn child with 18 years ahead until they reach adulthood has plenty of long term financial growth potential ahead of them.

interest rates for children

But where to begin with actually ‘investing’ – Child Savings

Junior ISAs have specifically been designed with children in mind. There are two varieties. Cash and stocks and shares.

If it’s an investment you want, then the sticks and shares version will allow you to invest your money in the stock market.

Providers may offer a variety of funds to choose from, or there may only be one fund connected to the plan.

Either way, you should read through the key investor information document for details of the funds on offer. 

Also, look out for charges, and compare different provider’s charges. Use this Junior ISA Calculator to give you an idea of how a child’s plan could perform over time and the impact that charges can have on your child’s money. 

Even starting from £10 per month, invested for 18 years could see s final sum when the child turns 18 of over £2,500.

You should be aware that investment can go down as well as up and you could get back less than you pay in.

I hope this guide had given you a useful insight into how a parent could start utilising the power of the stock market and investing for s child.
I am not a financial adviser and no part of this article should be taken as financial advice. If you are thinking about starting an investment, unbiased.co.uk will provide you with a list of qualified financial advisers local to you.

Like this article? This blog post was written by Jim from the Money Blog Scotland – Be sure to check them out. Money Blog Scotland is a UK personal finance blog about money, making money and gaining financial knowledge. We don’t promise financial freedom but maybe we can help if you are bamboozled by investments, ISAs, pensions, debt, credit cards or just want to know how to make a few more pennies.

Want to learn more about how to you can save money? Be sure to read our money-saving blog posts.

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