Money-saving expert Martin Lewis has issued new advice for parents looking to invest into their children's future.
With an ever-worsening cost of living crisis sweeping across the country, many parents may be thinking about the long-term future of their children's financial situations. While it's impossible to predict what the economy will be like when your children are 18, you can provide some financial security by setting up an account early one.
However, there are a wide range of options when it comes to investing in your child's future. From savings accounts to prepaid kids' cards and Junior Individual Savings Accounts (ISA) it can be hard to decide what is best for you and your child.
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Fortunately, Mr Lewis has gone into depth with all the options currently available for parents. Firstly, he advises parents to not do money management 'for them' but instead 'with them' as long as they're old enough.
Here's a breakdown of all the ways you can help your child save money today...
Children's Savings accounts
Mr Lewis explains the "four best options" for children's savings accounts. He said: "I will start with the Halifax saver, that is the highest payer at 5 per cent interest, fixed for a year, up to £100 a month.
"You can pop £10 in some months, £100 another month. That is the maximum. You cannot withdraw money unless you close the account and then you withdraw all the money at once."
He also listed the following that come with their own advantages and disadvantages:
- Saffron BS for ages 0-16 - comes with a 4.4 per cent fixed rate on £500 to £25,000 with no early withdrawals. Can also be opened at a branch or a post office
- HSBC My Savings for ages 7-17 - comes with 3.75 per cent variable rate easy access for up to £3,000. However, it can only be opened online if parents are already HSBC customers.
- Leeds BS Ronnie the Rino Youngsaver for ages 0-17 - comes with 3.65 per cent easy access on £10 to £1 million and can be opened by branch or post.
He also stated the advantages of going through different types of accounts with your children. He added: "It's great financial education, talking about getting the best accounts, talking through what interest means and how it works."
Prepaid Kids' Cards
Prepaid Kids' cards are essentially debit cards for your children but with more financial control. Mr Lewis explains that children aged six and over can use the cards to spend money online or in a store.
Prepaid cards operate by allowing parents to load money onto the card while also giving parents the freedom to set spending limits for kids or even blocking online payments. The most well-known Prepaid Kids' card is GoHenry, which costs around £36 a year.
However, there are cheaper options for parents including the following:
- HyperJar - is completely free but doesn't allow ATM withdrawals.
- NatWest Rooster: Allows childrens' chores to be listed in order to receive pocket money. Is free for one year for NatWest/RBS/Ulster parents but will cost £20 a year afterwards.
- Revolut - is free apart from £5 delivery but parents must already be customers. It also allows for ATM withdrawals
Junior ISA
Mr Lewis highlights that children are "taxable entities" and are mostly taxed like adults. He notes they can earn £12,570 a year tax-free or £18,570 a year if no earned income.
However, there is a specific rule on money given by parents or step-parents - if the money given to them generates £100 a year in interest, it is taxed at the parent's rate, not the child's rate. If this is the case for your child, a Junior ISA might be the best option.
He explains a Junior ISA is a tax-free saving account for up to £9,000 per tax year and once the money is in the account it remains tax-free. Despite this, it doesn't come without its drawbacks.
Mr Lewis explains that the money in the Junior ISA is locked away until the child's 18th birthday, by which point they can do whatever they want with it - the money will belong to them and not the parent. This means they can spend the money on whatever they want which may go against the plans of the parent.
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