For today’s young people, making their way financially in the adult world is harder than ever before. University fees look set to leave the next batch of graduates with debts in the region of £50,000, obtaining a home loan requires a substantial deposit and the jobs market is tough. Seeing this, many parents are providing financial support in a way that that their parents never had to, and the Bank of Mum and Dad is one of the most important lenders.
In order to prepare for these inevitable costs, parents are urged to begin financial planning as soon as they can, so it’s important to know what options are available. Here we have a look at how to go about building that important nest egg.
The Junior ISA is a great way to start setting aside money in your child’s name. You can invest as little or as much as you want each month, and be safe in the knowledge that the money pot will only grow in size. Some accounts require a minimum monthly deposit, but with specialists such as Family Investments this might only be £10 per month. When your child reaches the age of 18, he or she will be the only one who can access it.
If you want more control over the money when your child reaches adulthood, then you can begin investing in an ISA in your own name. Of course, you need to make sure you’re not tempted to dip into those savings yourself! Adult ISAs can come in the form of a cash savings account, where the money is protected and will accrue moderate interest, or a stocks and shares ISA, where the rewards can be greater but there is the risk of the pot shrinking.
Whether you choose to save in a Junior ISA or one in your own name, you need to make sure that you are making the most of your tax allowances. Savings which accrue interest count as income, and can be liable for tax. For the 2013-14 tax year, you can invest up to £3,720 without paying tax on the interest. The standard ISA allowance is £11,520, but only £5,760 can be put into a cash ISA – to make use of the whole allowance you’d have to split savings evenly across a cash ISA and a stocks and shares ISA.
More information on tax related to savings can be found at the HM Revenue & Customs website.