Saving for our children is important - but what are the options?
With Child Trust Funds no longer available and a new children's savings plan - called Junior ISA - expected to be launched later this year, independent financial research company Defaqto outlines the options available for people that want to start saving for their children in the meantime.
At the present time, children's savings accounts are limited to instant access, monthly or regular savings and term savings (often referred to as bonds). According to Defaqto data, there are currently:
102 instant access savings products for children, with the average interest rate for a £500 savings pot being 1.15% gross AER
37 regular savings accounts for younger children with an average interest rate for 2.30% gross AER for a £50 monthly contribution
16 term savings accounts, with an average interest rate of 2.86% for a £1,000 balance
There are also investment options, such as junior bonds, which require a fixed monthly contribution (maximum £25 per month), usually for a 10 year term. However, it is important for parents to recognise that these vehicles invest in the stock market.
Kevin Bray, Defaqto's Insight Analyst for Banking, said: "There are many reasons why it is important for children to save, or for savings to be made on their behalf, from a young age. Whilst there are limited savings options currently available for children, it is nevertheless important that parents do not delay making plans to meet the potential future costs of education and housing for example.
"Regardless of which type of savings vehicle is chosen it is essential that parents understand how each type of account operates and any risks involved, and then shop around for the option that makes the most of the money for their children."
Defaqto's top tips for parents when shopping around for savings options:
Ensure your children receive interest on their savings tax free by completing form R85, which is available from all banks and building societies
Look beyond the free gifts that are sometimes advertised with children's accounts and focus on getting the type of account you need and finding the highest rate
Make sure you are aware of any introductory bonuses that are included in the interest rates advertised and diarise the end date so you know when the rate will fall
Check the terms and conditions of savings accounts to ensure you understand any withdrawal and closure penalties