Most adults want to give children a good financial head start in life and with the rising cost of education, it is becoming increasingly important for children to have savings to fall back on. The earlier you start saving, the better placed you and your child will be for the future.

When choosing suitable savings plans or investments for your child, many of the same considerations apply as for adult investors.

 

	Timescale - find out if the investment is suitable for the timescale you require, short term or long term.
	Accessibility - if you think the money may be needed at short notice, make sure there are no withdrawal penalties.
	Risk - if the money is needed to meet an important bill, carefully consider the risk of the investment.
	Charges - even if you are saving only a modest amount, it is important to ensure that you are not paying excessive charges.

 

The minimum investment into a child savings account is normally £1, and anyone opening an account should certainly enquire about the starter pack, bonus gift, discount pack or other starter offers available from the chosen savings branch. Most child savings accounts are usually cash deposits and not include certain features of an adult current account such as a cheque book and debit card.

 

Get your FREE child savings brochures here.

 

Tax Issues

Children are treated in the same way as adults by the Inland Revenue and are allowed a certain amount of income before they start paying tax. So, for the tax year 2011/2012, they can claim back the tax on their savings income if their total taxable income is less than £7,475 - up a thousand pounds on last year.

 

However, if the savings have been given by a parent, the parent will be taxed on income from the child's account where the income or interest exceeds £100 gross taxable income a year. When that is the case the whole of the income from the gifts is normally taxed as that parent's income. The child is unable get back any tax on that income. The £100 rule applies separately to each parent. This rule does not apply to the income that is tax free such as income in a Child Trust Fund account or on a tax-free savings product from a friendly society.

 

If the child's total income, including interest, is expected to be less than the personal allowance of £7,475, interest can be paid 'gross' (that is, without tax taken off) until 5 April after their 16th birthday. To arrange for interest to be paid gross a parent or guardian must complete form Getting your interest without tax taken off (R85) with the child's details, sign it on his or her behalf and give it to the bank or building society.

 

Child Trust Funds
In 2002, the Government launched a 'child trust fund' scheme, a tax-free savings account into which Government 'endowments' are paid in a bid to encourage good savings habits. When the children turn 18, the idea is that the accumulated savings will be enough to help fund a tertiary education or a home.

 

Eligibility

 

Those children who were born on or between 1st September 2002 and 2nd January 2011. Their parents will have had to have been paid Child Benefit at some point before 2nd January 2011, the child must live in the UK and not be restricted in any way by the immigration authorities.

 

Government contributions are £250 at birth and up to £500 for children in lower-income families, except for those children born between 2nd August 2010 and 2nd January 2011 who receive £50 or £100 if in a lower-income family. Relative and friends of the child can top up the tax-free trust fund by up to £1200 a year.

 

All CTF payments from the government have now stopped, following an announcement by the chancellor in the 2010 Budget. However, existing funds are still able to be topped up until the children reach 18.

 

There are three different forms of Child Trust Funds

 

Vouchers were automatically sent out to parents following completion of a Child Benefit form. There are about 60 Child Trust Fund providers, some of whom are listed here.