Parents, as a rule, are naturally inclined to look after the long-term interests of their children. When it comes to money, there are a number of appealing options to pick from – but it might not be clear which is appropriate for your circumstances.
So, what are they?
Junior ISAs: Tax-Free Growth for Your Child
Junior ISAs are designed especially for children. You’re limited to just £9,000 in contributions per year, but anyone can contribute to the fund. The money belongs to the child, and they’ll get it when they turn eighteen. ISAs are a relatively secure and risk-free way to develop wealth over the long term.
Premium Bonds: A Safe Bet with a Chance to Win
This product, offered by National Savings & Investments (NS&I), effectively sees you buy a chance to win a prize each month. You don’t need to enter each month – you simply need to hold a bond. The annual prize return rate is around 3.6%.
These are government-backed and tax-free, which means that they might be tempting for higher-rate taxpayers.
Trust Funds: Tailored Control Over Your Child’s Assets
If you want to control exactly when your child gets access to the wealth you’re leaving them, then a trust fund might be your best option. You’ll appoint a trustee to control the assets in question on behalf of the ultimate beneficiary, your child. Among the many advantages of these arrangements is that they remove the need for probate after a grantor’s death, meaning that you’ll make things simpler for your child, later on.
Junior Self-Invested Personal Pension (SIPP)
It’s never too early to start thinking about retirement. With the help of a Junior SIPP, you can actually do this from early on in your child’s life. You’ll invest up to £3,600 per year in the pension, and avoid income and capital gains tax. You’ll also be able to boost your contributions by an additional 20% in tax relief.
Wealth Management: Professional Guidance for Tailored Investment
Wealth and money can be complicated subjects. The rules are constantly shifting, as is the economic environment. Even an educated layperson might not have the time to understand the intricacies of every investment, or know the best path forward. For this reason, it’s worth consulting an expert in wealth management, or even appointing such a person or organisation to oversee your investments on your behalf.
Conclusion
Protecting your child’s financial future might mean looking at one of a range of options. Knowing which is appropriate might mean consulting with an expert, and being honest about how much risk you’re willing to tolerate.
Generally speaking, however, any of the options we’ve discussed are likely to be far preferable to an investment in depreciating assets, like cash!
