A good way of saving for children in the UK?

October 12, 2010 1:40 AM

My parents have kindly offered to help us save for when our two children are older. They're around ten now, and my parents would like to help us pay for further education if they choose it in another six to ten years time. We'll be saving around £5,000 a year for the next few years. What solutions have you found for making saving for kids easy? Recommendations for particular products and companies are welcome.

These are similar issues to those answered here but, in addition, I'm looking for a place to save the money where it will be easy to invest, easy to track and flexible to extract when the time comes. So far, I've used Post Office bonds, which give the best return (such as it is these days) but are complicated to manage. I'd like the money to be in the children's names so that I'm not taxed on the income. But on the other hand, I don't really want to tempt my kids by giving them control of a large pot of cash just when they turn 18.

I've always been really happy with the efficiency and simplicity of my bank accounts at FirstDirect - but they don't offer products for children. Maybe an ISA, managed online and in our names? My parents don't want to save the money in their own names because they want to transfer the money tax-free to their grandchildren rather than there potentially being estate taxes applicable.

posted by iffley to Work & Money (5 answers total)

We've been researching the same issues; haven't made a decision yet, but Simply Child Savings offers a lot of UK specific information.

It was also good to pick F&C's brains. They were very willing to talk around the issue over the phone.

The Times allows you to register for brochures, but you WILL BE CALLED. So if you can't deal with salespeople (it seems when it comes to telemarketers in the UK these days amateurs rule - I almost always laugh at their opening and end up coaching them on their pitch so I'm fine with these calls YMMV).

Finally, The Fool has some good background reading on the topic, with a predictions that may or may not come to fruition over the next few weeks, as the spending review approaches.

So no definitive answer, but some resources that hopefully will help!
posted by Mutant at 2:55 AM on October 12, 2010

Money Saving Expert has some good tips for decent interest rates on children's Savings accounts.
posted by EndsOfInvention at 3:23 AM on October 12, 2010

You didn't mention the specifics of your financial situation, and I don't know how the UK system differs from the US system, but you should investigate how financial aid works for university. Over here, it's basically expected that any savings in a child's name is available for spending, and can directly reduce availability of grants. The tax savings might not be worthwhile if it ends up raising the overall cost of education.
posted by explosion at 4:49 AM on October 12, 2010

From the horse's mouth, as it were: direct.gov.uk

The premium bonds sound like they might be an attractive option for you. Security through obscurity in terms of the kids spending the money - if they don't know they exist, they can't spend them. All pay-outs tax free, so no worries there. £30k cap per person sounds in line with your savings objectives over time.

My father-in-law reckons that the payouts over time approximate the interest you might earn if you had invested in other government savings. The website suggests they pay about 1.5% of the total fund value. Then maybe you just need to check with Ernie from time to time.
posted by sagwalla at 10:49 AM on October 12, 2010

Response by poster: I decided to go with the Halifax Save4It account in the end.

Pros:
- The accounts are in the children's names but they can be held in trust so I keep control of them
- Balances are available online
- It's easy to add money to the accounts

Cons:
- The accounts are only available until the age of 16
- Maximum of £5,000 in each account
posted by iffley at 9:25 AM on November 9, 2010