Investing for your children

Having a kid? Thinking about saving money for their future needs such as driving lessons, university, or a deposit?

Save some money for them!

Cash vs S&S ๐Ÿ’ธ

If your child is young, you should consider S&S investments over cash accounts, as over long periods stocks are very likely to outperform cash, and thus avoid inflation eroding your child’s savings.

An example of this in action over 18 years:

The blue line shows ยฃ50/month contributed to the account for a total of ยฃ10,800 after 18 years. The orange line shows the value in real terms after 2% inflation (ยฃ9,458). The grey line shows the value after 7% growth (ยฃ17,533).

If you’re new to investing, don’t be daunted! Start with our Investing 101 page and try our Recommended Resources for more in depth guides.

Types of account ๐Ÿฆ

JISA (Junior ISA)

Suitable for:
โœ… Money for your child to use when they turn 18
โœ… Family members who want to save for a child’s future directly

Not suitable for:
โ›” Money you want to provide for a specific purpose (e.g. a house deposit)

JISA’s come in Cash and S&S variants, much like regular ISAs, and follow similar rules.

Saving into a Junior ISA will not use any of your personal allowance – your child has their own allowance, of ยฃ9,000 per year. Only a parent or guardian can set up a JISA, but once it’s set up, other family members or friends can contribute money to it. The parent who opened it remains responsible for managing the account (keeping contact details up to date and making investment decisions) but they cannot withdraw money from the JISA.

When the child turns 16, they are given control over the JISA, but cannot yet withdraw funds from it. At 18, the JISA becomes a standard adult ISA. These have no restrictions on withdrawals.

More info: https://www.moneysavingexpert.com/savings/junior-isa/

Your own ISAs

Suitable for:
โœ… Flexible help with education, home deposit, and other costs

If you’d like to save money for your child’s future but not necessarily for them to have full access to spend at 18, you will need to keep the savings in your own name. This allows you to gift the money to your child at whatever point(s) you consider to be appropriate, such as to pay for living costs during University or to buy a home.

Be aware that this will use your own ISA allowance, and in the event of your death may be subject to inheritance tax – the money is legally yours.

If you are saving for your own financial plans and your children in the same ISA but want to keep track of how much money is intended for which purpose, you can do so using a spreadsheet, or by using different funds for your and their investments.

Junior SIPP

Suitable for:
โœ… Helping your child save for retirement

Not suitable for:
โ›” Living expenses, higher education, home deposit, etc

If you want to give your child a head start on retirement savings, you can contribute ยฃ2880 a year into a JSIPP. This will get tax relief at 20% giving a maximum total contribution of ยฃ3600 a year.

When your child turns 18 this will become a regular SIPP and will be accessible according to the normal personal pension rules.

Over 60 years the power of compound interest is huge, so this is potentially worth considering. It could also provide a useful teaching tool about long term investments.

Note that of course this money can’t be used to help your child with university costs, to buy their first home, or any other goals before retirement age. Bear in mind that your child will have several decades to prepare for their own retirement, and may benefit more from help with financial goals earlier in their life.

LISAs

Suitable for:
โœ… Saving for a deposit

Not suitable for:
โ›” Children under 18

Lifetime ISAs are available in cash and S&S variants, and provide a bonus top-up to savings if used for a first home or retirement. It is possible to withdraw money for other purposes, but the bonus is lost along with a small further penalty, designed to discourage this.

You must be between 18 and 40 years old to open a LISA – they cannot be opened on behalf of a child. You can of course encourage your child to do so when they turn 18, and help them use their allowance.

Mix and match?

You don’t have to keep all your savings in the same ‘pot’, you can make use of all of these strategies in whatever combination or proportion works for your family.