Saving for the future when you already have the expense of children and a possible drop in income to contend with, can be really tough. However, you know that you should be doing it and really even saving a small amount can be really useful if you don’t dip into it!.

The purpose of this section is try to give a really basic guide to the main savings products around.

Our survey results: Parents who responded to the Questionnaire said they were either saving too little or not at all for their children’s futures.

We are clearly not financial experts and we do not intend to present any product more favourably then any other, but we will try to outline some options you may wish to consider.

Mainly, we have developed this section to provide you with some information on savings products that may help you plan for the long term financial future for your child(ren).

Before we start...
A key point is to be aware that if you give money to your child and it produces more than £100 a year income then this income will be taxed as if it is your own, not your child’s.

However, there are some savings products - NS&I products and the new Child Trust Funds that are especially designed for children and the income from these products is not treated as the parent’s income:

National Savings and Investments (NS&I Childrens Bonus Bonds)
These are financial products issued on behalf of the government that you can invest in on behalf of your child. In fact anyone can buy your child one of these bonds as long as they are over 16. All NS&I products are deposit based products - this means that you are guaranteed to get back the money you invested in the first place. As such they represent relatively low risk investment options.

There are a whole range of NS&I products available including fixed rate savings products and premium bonds. Some NS&I products also can provide a regular income.

For more information visit:
http://www.fsa.gov.uk

Other Savings options

Clearly, the above options are attractive because of the fact that the income from them is not classed as part of your income and so this is favourable from a tax perspective.

However, there are many other options to consider:

Savings accounts with banks/building societies. Clearly this is a huge market covering many companies and many products-some allowing for immediate access to funds at any time, some requiring notification of withdrawal of funds and some that will incur financial penalties if any money is withdrawn during the term of the agreement. Clearly, the longer you are prepared to leave your money in without touching it, the better chance you have of attracting a higher rate of interest.

Usually tax on the interest from these accounts will be done ‘at source’ i.e, the basic taxable amount will already be removed from the interest you receive from the account if you have notified your savings account provider that you are a tax payer. However, if you are not a tax payer, double check that the interest you receive has not had tax taken off. Likewise, if you are higher rate tax payer, you may have to pay this higher rate from the interest you receive net of basic tax.

There are some excellent ways of comparing and checking products of this type to find out what is best for you:
www.fsa.gov.uk/tables
www.which.co.uk

ISA: While you cannot take out an ISA in your child’s name ( you have to be over 16) there is no harm in using an ISA as a way of saving for your child’s future.

The ISA (Individual Saving Account) has replaced the TESSA and PEP.

The ISA s are free from income tax. Additionally, any increase in ISA value is not liable to Capital Gains tax. However, it is important to remember this increase in value is not exempt from inheritance tax.

There are 2 basic types of ISA:

The Mini ISA

The Maxi ISA

Features of The Mini ISA

• You may only invest in one component per mini ISA. The 3 possible components are;
  • Stocks and Shares
  • Life insurance
  • Cash
• You can however open up to 3 different mini ISAs in one tax year.
• You can put different amounts in each of the 3 ISAs but there is a maximum amount overall that you can invest in mini ISAs-£7,000 and a maximum amount per component-Stocks and Shares-£3,000, Life insurance-£1,000, Cash-£3,000.

Features of the Maxi ISA

• There must be a Stocks and Shares component.
• You can invest in all 3 components within the one Maxi ISA product, the 3 components being;
  • Stocks and Shares
  • Life insurance
  • Cash.
• Only one Maxi ISA can be opened by year.
• The mix of 3 components can vary, but there are maximum limits per component-£7,000- Stocks and Shares, £1,000 Life insurance, £3,000-cash. Plus an overall maximum investment level of £7,000 in total.

All High Street banks and Building societies offer ISA products as well as a huge range of financial services companies. The best advice is to shop around for an ISA and to make sure you fully understand what you are investing in. ISA’s can be seen as short, medium or long term investments, depending on the type of ISA you purchase.

Cash mini ISA’s, for example, can offer instant access to funds, whereas Stocks and Shares ISA’s are usually best suited to customers looking at this investment as a longer term savings option.

Do your own research and then back this up with independent financial advice if you think this is important before purchasing any financial services product.

Useful web sites:

www.fsa.gov.uk
www.which.co.uk
www.aifa.net

The information given in this section is not in any way intended to guide you towards any particular product or service. We do not offer information as financial experts or consultants and we would recommend you taking independent financial advice before purchasing any financial services product.