Saving For Your Children's Future

Many parents take the view that for their children to learn about budgeting, one of the best ways to educate them is to get them a savings account. Thanks to a range of schemes and special child bank accounts, parents have an increasingly a popular and easy way to ensure their children can learn about financial budgeting and the advantages it brings. One of the reasons why more parents are now saving for their children or encouraging their children to save money through a savings account is the introduction of child trust funds.

The child trust fund was introduced by the government and enables children born on or after 1 September 2002 to benefit from a free £250 voucher to start a child trust fund savings account. Those on low incomes can receive an additional £250 for their child. Essentially a long-term savings and investment scheme for children in the UK, the child trust fund scheme is tax-free and can be used in a variety of ways. There are 3 main types of child trust fund account - a savings account, accounts that invest in shares, and stakeholder accounts.

The child trust fund savings account is secure in that the amount of the trust fund will not decrease, and with interest added, will increase in value. The important thing to consider with the child trust fund savings account is that although interest is added, it might not always be as much as what the fund could earn if it was invested in shares. The child trust fund account that is invested in shares could go up or down in value, according to the value of the shares. The stock market is never certain, but history shows that over time the average value of shares usually goes up.

Stakeholder child trust fund accounts invest the money in companies, although these too can go and up down in value, they are considered to be less risky than investing in shares. If the stock market performs well, then a stakeholder account will not necessarily benefit as well, but the child trust fund is protected if the markets do badly as the child approaches their 18th birthday. It is important to remember that you can always move the child trust fund between types of account.

Many parents agree that a child trust fund, regardless of what type it is, will enable the child to learn more about saving money. Living in a consumer culture can bring many pitfalls, such as falling into debt, and the 'buy now, pay later' attitude. So saving money can provide a healthy awareness of how borrowing money, while convenient and helpful, is not the only way to get the things you want.

The most you can pay into a child trust fund per year is £1200, but regardless of how much you pay in, parents sometimes also see a benefit in providing their child with a savings account of their own that they can access in the short term. There is a range of children's savings accounts available from high street banks and other savers. Many accounts will offer free gifts as a way of attracting customers, but the important feature to look for is the interest rate on savings. Although children are exempt from tax on savings, the rate can vary between accounts. Involving your child in the process of looking for the best deal on a savings account, especially when comparing deals online, can be a great way for them to learn about saving money, and how the banks work.

Deciding which investment plans or savings accounts are suitable is not easy with so many options being promoted. Mark Bartley makes a few points clearer in this review. Mark has written numerous finance reviews to help people select an appropriate product.