How to save or invest for your child

When thinking about saving or investing for your child in the UK, there are several options that offer tax benefits, flexibility, and growth potential. Here are the best options:

1. Junior ISA (JISA)
- Junior ISAs are tax-free savings accounts for children under 18. There are two types: cash JISAs and stocks & shares JISAs.
Advantages of these types of accounts are:
- Tax-free interest, dividends, and capital gains.
- You can save up to £9,000 per tax year (2024/25 limit).
- Money is locked away until the child turns 18, at which point it converts to an adult ISA.

Disadvantages of this type of account are:
- Money can't be accessed until the child turns 18.
- Investment risk for stocks & shares JISAs.

To summarise JISAs are best for long-term savings and growth due to tax efficiency and compounding potential.

2. Child Trust Fund (CTF)

Some children born between 1 September 2002 and 2 January 2011 have Child Trust Funds, which have now been replaced by Junior ISAs. However, existing CTFs can still be contributed to.
- Pros:
- Similar to a JISA with tax-free growth.
- Cons:
- Limited product options, as JISAs are often more competitive.

If your child already has one, it's a good idea to review its performance and consider transferring it to a Junior ISA for better returns.

3. Children’s Savings Accounts
Standard savings accounts that offer interest on savings, although often lower than other options.
- Pros:
- Easy access to money.
- Simple to open and manage.
- Cons:
- Interest is often subject to income tax if it exceeds the annual personal savings allowance.
- Lower interest rates compared to JISAs or investments.

These are best for short-term savings, or if you want easy access to the money.

4. Premium Bonds
Premium Bonds are offered by NS&I (National Savings & Investments), where instead of interest, you enter a monthly prize draw.
- Pros:
- No risk to your capital, as it's backed by the UK government.
- Potential to win tax-free prizes.
- Cons:
- No guaranteed return, as winnings are based on luck.
- Lower average returns compared to investing in stocks and shares.
These are best if you prefer capital security with a chance to win prizes, though it may not be the best for long-term growth.

5. Stocks & Shares
Investing in stocks, bonds, or mutual funds in your own name for your child’s benefit.
- Pros:
- Potential for higher long-term growth than cash savings.
- You control the timing of when your child gets access to the funds.
- Cons:
- Investments can go down as well as up.
- Capital gains may be subject to tax.
- Best for: Long-term growth potential and if you're comfortable with investment risk.

6. Pensions (Junior SIPP)
A Junior Self-Invested Personal Pension (SIPP) is a long-term savings vehicle that can be accessed from age 55 (or later under future rules).
- Pros:
- Tax relief on contributions (20% added by the government).
- Significant potential for long-term growth due to compounding.
- Cons:
- Locked away until your child reaches retirement age.
- Contributions limited to £3,600 per year (including tax relief).
- Best for: Building a long-term retirement fund with substantial tax benefits and growth potential.

7. Regular Savings Plans (Investment Trusts or Funds)
Many investment providers offer regular savings plans into investment trusts or funds that can be used for children’s future.
- Pros:
- Flexibility in choosing the amount to save and investment funds.
- Potential for good long-term returns.
- Cons:
- Subject to investment risks.
- Management fees may apply.
- Best for: Regular, disciplined saving with a focus on long-term growth.

8. Trusts
A trust allows you to save or invest money for your child, with specific rules on when they can access the money.
- Pros:
- Flexibility in controlling when and how your child can access funds.
- Can be used to minimise inheritance tax.
- Cons:
- Can be costly to set up and administer.
- Potential tax implications depending on the structure.
- Best for: High-net-worth individuals or those wanting more control over access to funds.


Conclusion:
- For short-term savings: Consider cash JISAs or Premium Bonds.
- For long-term growth: Stocks & Shares JISAs, Junior SIPPs, or investment trusts offer better growth potential, though they come with some risk.
- For maximum control: Trusts or setting up a regular investment plan in your own name may give you more flexibility.

A diversified approach that combines a Junior ISA for medium-term savings and a Junior SIPP for retirement can also be a powerful strategy to ensure both shorter and longer-term financial stability for your child.