Bank of Mum & Dad: What are the Best Ways to Save for Your Child's Future?

It’s official, the next generation is already shaping up to be savvy savers. But how can we prepare our children for the best possible future? 

According to Aviva figures, parents estimate that their children, aged 16 and under, have saved an average of £416 on their pocket money. 

The study shows that 24% of parents believe that their child has saved between £201 and £500, while 9% have indicated that their child has already saved between £501 and £2,000. 

With as much as 78% of parents encouraging their children to save some or all of their pocket money, younger generations will have stronger skills when it comes to financial management than their predecessors. 

There are many benefits associated with saving for your child’s future, even beyond the financial aspect. Getting your children involved with saving from a young age helps to foster better saving habits, introduces your kids to economic goals, and provides them with first-hand experience with earning interest over time. 

But how can you give your children the best possible start in life by saving for their future? Let’s take a look at some key practices that could help to build a nest egg for adulthood: 

1. Tax-Free Saving with a Junior ISA

Junior ISAs, or JISAs for short, allow you to save and invest without being taxed on the interest or the profits you make. 

This is a key perk when it comes to saving money for your children because if the money saved for your child generates more than £100 in interest a year, it would otherwise be taxed at your rate for all the interest, not just the part that’s over £100. 

Opening a Junior ISA means that you’re safe from these interest pitfalls, and tax-free gains mean that your children can enjoy more compounded returns which can then be reinvested for even higher levels of profitability. 

With this form of individual savings account, you’re free to invest £9,000 tax-free each year. Even better is that there’s no limit to who can contribute to your JISA, meaning that grandparents, uncles and aunts, and even friends can help you build a nest egg for your child’s future. 

2. Regular Savings Accounts

With a regular savings account, you can pay in as much money as you want each month to meet agreed limits to take advantage of higher interest rates and future returns. 

While the amount of money you can pay into regular savings accounts can vary, it must fall within agreed limits, such as between £10 and £100. 

This makes a regular savings account an effective way to use interest to build your child’s wealth ahead of adulthood. If you can commit to paying an agreed sum each month for a year or more, this approach could be ideal. 

However, it’s important to check the terms of the savings account, because you may only be able to earn interest if you keep the balance above a minimum amount. Additionally, some accounts may only allow withdrawals when the account is closed. 

3. NS&I Premium Bonds

Premium bonds have been a popular investment strategy offered by National Savings and Investments (NS&I). With bonds, it’s possible to buy any whole-pound amount of bonds worth between £25 and £50,000 and every month, each £1 bond is entered into a prize draw. 

When your child turns 16, their premium bonds will be signed over to them. With prizes of up to £1 million, this savings strategy could have an extremely high upside, particularly as all winnings are tax-free. 

Premium bonds can also be bought by a child’s grandparents, meaning that there’s added flexibility over who has the freedom to save for a child. 

Unlike many savings accounts, you can deposit up to £50,000 in premium bonds, making this strategy a great option if you have a lot of money to save on your child’s behalf. 

However, it’s important to think about bonds rationally, and there’s no guarantee that you will win any prizes. 

4. Junior Self-Invested Personal Pension (SIPP)

Helping to get your child set up for later life can extend all the way to their retirement. Here, it’s possible to open a Junior SIPP, which works similarly to adult pension schemes. 

Although it might seem like a world away, with 57% of UK adults claiming that they aren’t confident that they have enough time to save for the retirement they want, getting started with a Junior SIPP could be a great saving strategy. 

Crucially, Junior self-invested personal pension plans are eligible for 20% tax relief, meaning that for every £80 you save, the government will automatically round it up to £100. 

However, it’s worth remembering that a SIPP will be untouchable until your child is 55, making this an extremely long-term investment strategy. 

5. Piggy Banks

Nothing beats a good old-fashioned piggy bank, and for good reason. Piggy banks are an excellent way for your kids to get up close and personal with their savings. This means that they can physically see the money they save building up and will be better at differentiating between the value of their savings and their hard work in earning their pocket money. 

How you manage your child’s piggy bank is up to you. You could regularly offer to invest their savings to see how their investments can build, or teach them discipline by allowing them to save for a big purchase once they’ve saved enough. 

Piggy banks are the perfect tool for building financial literacy and could be a great saving strategy no matter how you choose to build your child’s future wealth. 

It’s Never Too Late

While it’s certainly never too early to begin saving for your child, it’s also never too late. Even if your child has become an adult, there are still many options to help you provide them with a bright future. 

If your child or grandchild is between the ages of 18 and 39, you can open a Lifetime ISA (LISA) on their behalf. While they would need to open the account themselves, anyone would be able to pay into it. 

Because your children will never stop being your children, there’s no reason to stop investing in their future. With these savings strategies, you can help to provide your kids with the best possible level of comfort in their adult life, no matter their age.