How to maximise your children's savings
In this week's blog: whether you have a Child Trust Fund, Junior ISA, or other savings and investments for your children, Pete Selby shows why it's important to review them - like you would any other investment.
What's the greatest gift you could possibly give a child?
If you ask the child, they might come up with all sorts of seemingly random requests.
A quick poll around our office revealed offspring who wanted magnetic slime, a sword, "a really really fluffy blanket," and a robot unicorn.
But those are mere stocking fillers compared to the true best gift for any child: a financially secure future.
If you have children, how can you ensure you provide this for them?
Now if you have children, and you opened a Child Trust Fund (CTF) or Junior ISA for them when they were born, then you may think you've already got this covered.
And yes, savings are the best gift you can give your children (after good manners and broccoli).
But any money you put into that account back when you first had your children has probably been sitting there for years.
If you have a Child Trust Fund for any of your children, you might not even have noticed when that scheme closed and was replaced by Junior ISAs in 2011. Child Trust Funds were available to children born between 1st September 2002 and 2nd January 2011, and the government offered a voucher up to £500 (depending on income) to open them. Today some six million CTF’s still exist.
You can still pay up to £4,368 per year into a Child Trust Fund if you already have one… You just can't open a new one any more.
But by now, your old Child Trust Funds may have considerably lower interest rates and higher fees than many Junior ISAs or other financial products on the market - or poor performance if they were invested in stocks and shares.
Regardless of whether you have a Child Trust Fund, Junior ISA, or other savings and investments for your children, it's important to review them at least once a year to make sure those products are still the right choice – just like you’d review any investment.
And right now, towards the end of the year, is the perfect time to tie up this loose end.
Ask yourself, is this the best use of your child's money? And if so, is this specific account the best place in which to put it? I did just that recently, and the results surprised even me!
To give you the background, my eldest son just missed out on a Child Trust Fund as he was born in 2001, but my youngest son was born in 2006 and so qualified. Given the access to advice I had, I decided to purchase a stocks and shares CTF for him. I’ve topped it up a bit since the Government kindly started it with their voucher and decided to review it recently following a conversation with my financial adviser.
I was a little shocked to see the ongoing fund fees and the cost of administration for this 13-year-old plan and on my adviser’s recommendation I’ve now transferred it to a Junior ISA where I’ve halved my annual fees and chosen investments that are more likely to outperform the incumbent funds.
It’s also now far easier to top up than before thanks to the technological advances over the last 13 years and even the odd bit of birthday or Christmas money from friends and family can be added easily (when he isn’t spending it on computer games, that is!).
It didn't take long to do, and it means there could be more money in his account by the time he’s old enough to take control of it.
If you have children, you could potentially save a lot more money for them by taking a little time to assess whether the account it's in right now is the best one.
And this is especially true if nobody has paid much attention to those accounts for years, as is often the case with Child Trust Funds!
Fair enough, this may not be a present your children will fully appreciate now... They may be at the age where the magnetic slime, a sword, the "really really fluffy blanket," or the robot unicorn means more to them.
But in a few years' time, they'll realise that money to support their future is a priceless gift.
P.S. I have two more suggestions of little tweaks you should make to your finances, to tidy them up before the year’s end… And make the most of your money in 2020 and beyond.
Watch out for those blogs!
Risk warning: As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest.