Before we explore some of the best ways to save for your child’s future, you might want to ask yourself this really simple question. If you’re happy with your answer, you should have a clear understanding of what you want to achieve. Naturally, you might find this next step a lot easier.
Below are some of the traditional ways to save for your child’s future.
| Type | Average interest rate (comparable to available options) | Withdrawal policy | Who can open it? | Limitations |
| Instant access savings | Low | Instant access at any time | Children over 7 years, parents, guardians or other family members | Low interest rate |
| Regular savings | High | Instant access at any time | Parents, guardians or other family members | Usually a maximum monthly input amount |
| Fixed term savings (bonds) | High | No withdrawals until the end of the term (up to 5 years) | Children over 7 years, parents, guardians or other family members | Savings are locked away until the end of the term |
| Junior ISA (cash) | Low | No access until 18th birthday, after which it converts into an instant access ISA | Parents or guardians | Savings are limited to £4,128 per tax year |
| Junior ISA (stocks and shares) | Potentially higher than cash, though dependent on the performance of stocks and shares | No access until 18th birthday, after which it converts into an instant access ISA | Parents or guardians | Savings are limited to £4,128 per tax year |
| Junior SIPP | High | No access until aged 55 (57 from 2028) | Parents, grandparents or guardians
|
Savings are locked away for a significant time period |
(Source: Money.co.uk)
Let’s take a closer look at one of the most popular choices: Junior ISAs
Maximum input per tax year (2016-2017)? £4,128
Tax-free? Yes
When saving for your child’s future, there are two types of Junior ISAs available to you: a cash ISA and a stocks and shares ISA.
The Junior ISA dilemma: cash vs. stocks and shares
Once again, your choice here depends on your answer to the really simple question. In a nutshell, think of cash ISAs as savings accounts, and stocks and shares ISAs as investments. Let’s take a closer look at each one.
Cash
You might find a cash Junior ISAs to be best suited for short-term savings, especially if you’re working to a tight deadline, like a fast-approaching birthday.
Whilst these can offer high levels of security, they don’t give your money much space to grow. In the grand scheme of things, cash-based accounts operate on a low risk, low returns basis. So, if you want to avoid risk and preserve capital, creating a cash Junior ISA could be the right fit. Ultimately, if your account is with a UK-regulated provider, the money you put in is “completely safe” provided you have “no more than £85,000 with that financial institution.”
Potential problem: Inflation could be your biggest threat. Over time, cash loses what is called purchasing power. Over time, although you won’t actually be losing money, it will be able to buy you less. If inflation continues to rise, £10,000 won’t be worth £10,000 in a few years. If the interest rate in your cash Junior ISA is below the rate of inflation, you could be losing out.
Stocks and shares
If you’re comfortable with a higher level of risk, you might find a stocks and shares Junior ISA to be more suitable for long-term savings. If time is on your side and you’re far away from your deadline, you might be able to afford a little bit more risk. However, this is a personal decision which you need to feel comfortable with.
When investing in stocks and shares, you’re buying a slice of a company. Your return on investment is dependent on the how well that company does. That’s where the risk comes in: you’re placing your faith in the hands of a company’s future performance. The market is often referred to as being “volatile,” or in other words, risky and uncertain, because prices are often running up and down. The stock market’s performance looks less like a straight line and more like a mountain range, especially in the short-term.
According to Dan Egan, Managing Director of Behaviour Finance and Investing at Betterment, short term losses are a natural part of long term gains, “as long as you know you’re invested appropriately and are expecting, rather than reacting, to them.”
It’s worth noting, however, that there is a risk that you might get back less than what you put in, however, you could potentially have a lot more. As the saying goes, the higher the risk, the higher the potential reward.
Property: the best of both worlds?
If you wanted to take the potential for higher returns from a stocks and shares Junior ISA, but take on a slightly lower level of risk, and actually benefit from inflation, you might find yourself looking at property investment.
Thinking outside the box might be the best way to save for your child’s future. It’s not uncommon for parents to set aside money from their own investment pocket. Property offers a wealth of potential, and individuals are no longer limited to the traditionally expensive and time-consuming route. There’s a new way to invest in property, and it can provide actual passive income.
On top of this, as property is a real asset, it won’t just help you avoid the dangers of inflation, but it can actually help you profit from it. To learn exactly how this works, head over to this article, “How to Create the Most Effective Nest Egg for your Child’s Future.”
One of the golden rules to investing (aside from compound interest) is diversification. By spreading your money across a number of different investments, you can mitigate risk and potentially increase your returns. For example, you could choose to spread your savings across a Junior ISA and various property investment opportunities on our platform, potentially allowing you to create well-balanced portfolio.
Property Moose Perks:
- We offer a variety of different products, so depending on your answer to the really simple question, chances are, we’ll offer a product which is suited to you
- Our minimum investment is just £10, which means that you can start small and start now
- You also won’t have the manage the property or deal with any of the headache - that’s what we’re here to do
To learn more about property crowdfunding, click here.
Written by Jenna Kamal
Disclaimer and Legals
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
