Best way to save a nest egg for my kiddy in the UK

February 8, 2009 1:16 AM

Hi. I live in the UK and have a 3 month old baby boy. I have just started saving into a child trust fund but am trying to figure out if this is the best way to save some money for his future. I would like to generate a lump of cash for him when he is 16-18 (for Uni or whatever needs paying for then), would prefer to do it ethically, and am not sure what the best value way of doing this is. More details available if needed but gotta go ... he's waking up! Thanks in advance!!!
posted by steve3001 to work & money (13 comments total)

How much can you afford each month?
posted by essexjan at 1:52 AM on February 8

Hi Essexjan. Probably £50. Just trying to work out what the relative balance of fees vs tax etc. Thanks.
posted by steve3001 at 2:15 AM on February 8

Ah ok. If you'd had a couple of hundred a month to spare I'd have suggested putting it into buying a small house somewhere that could be used to generate some rental income. I'm not talking about the crap buy-to-let new-build flats that have proved to be such a white elephant for investors, but a single terraced house or a flat in a decent area. Are there any grandparents who might be willing to invest jointly with you on such a thing? There'd be CGT implications in buying a property that's not the owner's main residence, but over 18 years it would turn out to be a sound investment. A one-bedroom flat that sold for £50k 18 years ago (in the middle of the last property crash) is worth at least £150k now.
posted by essexjan at 2:33 AM on February 8

Buying a buy to let could be a massive liability for a new parent. I suggest you get a index tracker via the Child Trust fund and pay in 50 quid a month - should be a nice sum in 18 years time. Co-op do ethical racker based on Ftse 4 Good, which filters out tobacco / arms.
posted by laukf at 2:43 AM on February 8

Seconding the Co-op CTF (it's actually run by the Childrens Mutual), which is what we chose for our 5mo daughter. Do bear in mind that the money is locked up until your son's 18 (16?). We also opened a tax-free bank account so we have a 2nd, smaller nest egg (for, say, a new clarinet when she's 12).

Getting into the property market sounds like an awful lot of work frankly, and not without risk.
posted by dogsbody at 3:18 AM on February 8 [1 favorite has favorites]

As a brief counter thought to your premise, I have observed that many children that were given such a nest egg through parental planning or inheritance, ended up being negatively diverted by it. I suggest you devote at least as much time to devising a healthy disbursement plan, as you do to the original investment strategy.
posted by fairmettle at 4:08 AM on February 8

If you both work, you might consider hiring an au pair to teach the child French, Italian, German, or Spanish. You know universities on the continent are often better, much less expensive, less encouraging of alcoholism, and grant european business connections.
posted by jeffburdges at 7:59 AM on February 8 [1 favorite has favorites]

I had a great rate on a (government-backed) childrens' bonus bond by getting a 5-year fixed rate at a time when a good rate was offered. The current rate is less impressive, but it could be something to think about in the future.

I have observed that many children that were given such a nest egg through parental planning or inheritance, ended up being negatively diverted by it. I suggest you devote at least as much time to devising a healthy disbursement plan, as you do to the original investment strategy.

I think the disbursement plan is: Give it to a university in exchange for an education leading to a degree.
posted by Mike1024 at 9:17 AM on February 8

essexjam: At this point in the business cycle, a geared investment in property cannot reasonably be regarded as low risk.

To the OP: Be aware that money saved in a Child Trust Fund becomes the property of the child at 18. They can spend it on anything they want to. If your intention is to save to expenses that you regard as important then it may be preferable to ignore the CTF and save in an account that you hold in the child's name, but have control over.
posted by pharm at 11:33 AM on February 8

drat: s/save to/save for/
posted by pharm at 11:33 AM on February 8

We have a new baby and are going through the same thought process (in the States).

First and foremost, make sure you have your own retirement well planned for. You won't be able to help your child if you're in financial straits in 18 years.

Second, whatever type of fund/account you choose, it's a good idea to make sure others (family, etc.) can also contribute to it. Usually not an issue, but can be.

Third, start early (which you are doing). As you know, a little bit now grows into much more than a little more later.

Good luck!
posted by smelvis at 2:44 PM on February 8

Check out Ethical Investing - The Internet's Guide to Ethical Investing Resources.

Alternatively, you could simply open a high interest children's savings account with a bank that's signed the Equator Principles. I believe HBOS were one of the initial signatories.
posted by Mephisto at 3:19 PM on February 8

Thanks everyone for your help and advice. We have signed up for the Coop/Children's Trust Fund Ethical Tracker - but we are going to split the money. He will get a lump sump when he is 18 (lucky him) - but some we will put aside that we can help with Uni etc.
I take the point about planning the disbursement - but he won't have a 2nd bite at the apple. He will be spend it badly. We will be disappointed but those will be his decisions and he will have to learn to live with the consequences.
posted by steve3001 at 9:31 PM on February 9