We talk to the experts to find out how you can save for your child’s future, setting them up for later life from university to pensions.
We all want to do the best we can for our children, and thinking about their long-term finances can be an act of foresight that’s hugely appreciated in years to come.
How to afford university fees
With tuition fees costing up to £9,250 a year, it’s little wonder that parents want to save in advance — and it’s never too early to get started, says Rachel Springall, finance expert at Moneyfacts.co.uk.
“Setting aside a minimum of £100 a month is a fantastic start,” she explains. “Apart from children’s savings accounts, another vehicle to consider would be a junior ISA (JISA) — savers can choose a cash interest option or a stocks and shares version, which in the long term is likely to outperform the low interest rates on offer from most bank accounts today.”
For those comfortable with investment risk, going down this route could pay off, with analysis from Fidelity International revealing that saving £100 a month into an investment JISA could generate £32,000 over 18 years, more than enough to cover three years’ worth of tuition fees.
How to buy your first house
It’s a similar story when it comes to saving for a first home. Again, starting early is key, as even small savings can lead to substantial returns over a decade or two. Buying a house depends on mortgages, the size of which will also dictate how much you need to save for the deposit. Normally, this would be around 5% of the property value, but if you can save 10% or more it will improve the mortgage deals you’re able to secure.
Paul Gibbens, property expert at Housebuyers4u, recommends JISAs here as well, the bonus being that your child won’t pay tax on any interest earned. Alternatively, you could “open a savings account on behalf of your child and get them to start managing it, which can be done from the age of seven,” he adds.
And, if parents are concerned about their children getting their hands on a sizeable sum of money in their teenage years, they could approach a solicitor to discuss locking any savings into a trust, notes Rachel, so it stays ready for that all-important deposit.
Read more: How to teach children financial literacy
Think about pensions for your children
Many of us don’t give enough thought to pensions for ourselves, let alone our children, but Chris Eastwood, co-founder of Penfold, believes that paying into a pension for your child should be an option. A pension pot is the total amount of pension contributions you and your employer have collectively saved for your retirement. Your pot also includes any capital growth earned from the fund’s investments, depending on how your scheme was set up. While the state pensions subsidise money during your retirement, it’s a good idea to spread your pension over a number of different sources. This can be done through private pensions or workplace pensions.
“Under current regulations, you can pay in up to £2,880 per year [for a junior pension], and with the 20% tax relief added on top, this takes it up to £3,600,” says Chris. “The money invested will be tied up until the child is in their mid-50s, but your contributions could alleviate some of the pressure on saving for a pension later on in life.”
“The compound interest can provide a real boost to their retirement fund,” adds Paul Wilson, consumer finance expert at Little Loans. “It’s a tax-efficient way to get a nest egg started for your offspring.”