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Children's savings guide

Making good financial decisions now can help open doors for your children when they reach adulthood.

What kind of expectations does your child have? Our research has shown that teens expect to move out at 22, get their dream job at 25 and buy a home at 28.

Savings can help them pay for the important stuff – going to university, buying their first home, or even funding a gap year – but getting kids involved in saving is also a good way to teach them about money.

How you save for your child's future is up to and there's plenty of options available. Read on to find out about:

Child wearing a tie talking on the phone

Junior ISAs

Junior ISAs were introduced in 2011 to replace the government-subsidised Child Trust Fund (CTF) scheme. Unlike CTFs, Junior ISAs do not include an initial government payment, but are a long-term, tax-free savings accounts for children.

There are two types of Junior ISA - ones that save in cash and ones that invest in stocks and shares. A child can have both a cash and stocks and shares Junior ISA, and up to £9,000 can be contributed towards them - combined - each year.

Cash junior ISA

With a cash junior ISA, you pay no income tax on the interest earned. In most cases you won’t pay tax anyway, but cash junior ISAs currently offer relatively low interest rates, up to 2.5% in July 2021.

Stocks and shares junior ISA

Stocks and shares junior ISAs offer the opportunity to save for a child’s future by investing in the markets. Any growth on the investment is free from capital gains tax and income tax.

A child can have both types of junior ISA, as long as no more than £9,000 is put into the two accounts combined each tax year. Junior ISAs can be transferred between providers if needed and you can also transfer a child trust fund into a junior ISA.

When the child turns 16, they will have the option to take control of the account, make their own investment decisions and transfer between providers, but they can't take any money out until they turn 18.

At this point it is entirely up to them – in legal terms – how they use the money.

At age 18, junior ISAs automatically become adult ISAs and retains their tax-free status. Because they mature when the child reaches 18, junior ISAs are generally better suited to goals such as helping your children pay university tuition fees, or to use as part of a deposit on a first home.

Junior ISA

Junior ISA

With our stocks and shares Junior ISA you can start investing from just £10 per month up to a maximum of £9,000 each year on behalf of a child. Anyone can pay in, and the child will gain access to the account once they are 18 years old.

Explore Junior ISA

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How much could you help your child save with a OneFamily Junior ISA?

Decide how much you want to open your Junior ISA with and and how much you’d like to pay each month. Our simple Junior ISA calculator will quickly give an idea of how your child’s money could grow.

The projection shows how your child's Junior ISA could grow with low, medium and high growth scenarios. Remember, projections are not a guarantee of future performance and your child could get back less than you pay in.

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Amount your child could receive at age 18

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Tax Exempt Savings Plans

Tax Exempt Savings Plans (TESPs) are investment products that are only offered by friendly societies like us. We offer a Junior Bond.

They are different from savings accounts and ISAs because you choose how long you want to invest for - usually 10 years or more - and the payments are fixed for this period.

You can save up to £25 a month or £270 a year into a TESP and when the policy matures you receive a tax-free lump sum, as long as you have kept up these payments. As the name suggests, you won't pay any tax on any returns.

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Junior Bond

Our Junior Bond is a Tax-Exempt Savings Plan designed to help you save on behalf of a child for ten to 25 years. You can open one for any child under the age of 16 and when the policy matures the child will receive a tax-free lump sum.

Explore Junior Bond

Child Trust Fund Tranfer Family with piggy bank

Junior ISA and Junior Bond comparison

Junior ISA

  • Invest anywhere from as little as £10 a month and up to £9000 a year
  • Available in both Cash and Stocks & Shares options
  • Child can take ownership of the account at 16 and gain full control of their funds at 18
  • No tax paid on the returns when child reaches maturity
  • When policy matures, Junior ISA becomes a regular Adult ISA
  • Payments do not have to be regular

Junior Bond

  • Payments fixed at a maximum of £25 a month or £270 a year
  • Invests in Stocks & Shares
  • Payment term is fixed for a number of years, at a minimum of 10 years and a maximum of 25
  • If you fulfil at least 10 years of payments, you qualify for tax benefits
  • When policy matures, child receives a lump sum
  • Payments must be made on a monthly or yearly basis for the entire payment term

It's worth remembering that the value of stocks and shares can fall as well as rise. This is normal for this type of investment, but you could get back less than has been paid in.

Child savings accounts

Child savings accounts are designed specifically for children. They’re simple cash accounts that grow by building interest. Broadly speaking there are two main types:

  • Easy-access or instant-access savings accounts
  • Regular savings accounts

They can be opened with banks or building societies for any child up to the age of 18. The minimum you need to open a child savings account is £1.

Their main purpose is to to help children learn about saving and money management as the money in the account can be accessed at any time.

Find out more: Junior ISAs vs child savings accounts

Easy-access and instant-access child savings accounts

These two types of child savings accounts are every similar, they both let children withdraw money either immediately or very quickly.

If you want to involve your child in the saving and spending process then an easy-access savings account could be a good choice.

However, make sure you check the rules on the account as some providers may limit how many times you can take money out or offer lower interest rates if you do so often.

These types of accounts tend to have lower interest rates overall than regular savings accounts.

Regular child savings accounts

Regular child savings accounts are geared towards more regular saving.

You have to deposit money into the account at least once a month and it can take longer to make withdrawals from than easy-access child savings accounts.

They usually have a higher interest rate than easy-access child savings accounts, but if you miss some of your monthly payments the interest rate could go down so make sure you check.

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Other options

Your own ISA

Saving for your children in your own cash or stocks and shares ISA could be an attractive alternative to a Junior ISA. With the current annual ISA limit standing at £20,000, it is certainly possible to save or invest more – but this will mean limiting the amount you can save for your own purposes.

While the tax benefits are the same as for Junior ISAs, money can be withdrawn from a standard ISA at any time – which could be a good or a bad thing, depending on your point of view. If you are saving for your children’s school fees, for example, you may need to have access at a much earlier age than 18.

And there is no point at which the contents of the ISA become the legal property of your child, which could be a selling point if you have concerns about whether the money will be used wisely.

Advantages:

  • No tax paid on any returns, whether that’s interest in a cash ISA or from investments in a stocks and shares ISA.
  • The annual limit for your ISA is £20,000, which is higher than a junior ISA’s £9,000 annual limit.
  • If your child needs the money before they turn 18, you can withdraw it, while in a junior ISA the money is locked in until the child turns 18.

    Disadvantages:

    • The money isn’t locked in for the child, meaning the savings could be dipped into over time.
    • It counts as part of your own ISA allowance, so there’s less room for you to save for yourself.

    A child’s pension

    If you want to take a really long-term approach, you could consider setting up a pension for your child – perhaps alongside one of the savings vehicles described above.

    Up to £3,600 a year can be saved on a child’s behalf in a self-invested personal pension (SIPP). But because tax relief can be claimed on pension contributions, this amount of pension will only cost £2,880 – or £240 a month.

    In general, children’s pensions are designed to be invested in the stock market and related assets. Like any other pension, the money can not be accessed – without incurring significant tax penalties – before the age of 55. But the potential returns than could be achieved over a period of half a century or more are considerable – although they are not guaranteed.

     

    Advantages:

    • Tax relief is paid on contributions.
    • The fund has a long timeframe in which, potentially, to grow.
    • Your child will probably thank you – eventually.

      Disadvantages:

      • The money can’t be accessed until age 55, which means it probably can’t be used for university fees or a first property purchase.
      • The tax treatment of pensions may change in a negative way in future.

      Frequently asked questions about saving for children

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