In celebration of National Children's Day UK (NCDUK) on May 15th, we're looking to the future in this week's blog and focussing on the benefits of setting up savings accounts for your little ones.
Although the principal aim of NCDUK isn't to do with finances - it's about protecting the next generation and ensuring they have the freedoms and opportunities they deserve - it does allow people and organisations to highlight the work they do that benefits kids, and financial institutions that offer savings accounts for children do exactly that.
Saving for a child means that when they become an adult, they will have money of their own which they can use for whatever they want. Whether they choose to go travelling or use the money as a deposit for a car or a house, starting a savings account for your child today will give them independence and reduce the financial pressure they will face tomorrow.
Obviously the amount you choose - and are able - to save is important but it's not the be-all-and-end-all many people believe. For example, one person saving just one pound a week from when a child is born until it turns 18 will earn £936. If both parents contribute to the account and each saves £2 per week, suddenly the total rises to a not-insignificant £3,744.
The easiest way to save larger sums for your child's future is with a junior ISA (individual savings account) which allows you to save up to a certain amount each year.
Available from many credit unions, banks and building societies, Junior ISAs are long-term, tax-free savings accounts for children that are opened by their parents or guardians. Although the parents or guardians manage the account, the money belongs to the child, who can take control of the account once they turn 16 but can't withdraw any money until they're 18
There are two types of junior ISA: cash ISAs and stocks and shares ISAs. With a Cash ISA, you don't pay tax on interest on the cash you save; with a stocks and shares ISA, your cash is invested and you don't pay tax on any capital growth or dividends you receive. Most people opt for cash ISAs as they are generally regarded as being lower risk than the stocks and shares option.
Once an account has been set up in a child's name, anyone can pay money into it but the total amount paid in cannot exceed a certain limit; for the 2022-2023 tax year, the maximum amount that can be paid in is £9,000.
If your aim is to save money for your child and then gift them the amount you've saved once they reach a certain age, a junior ISA is the way to go.
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Some people want to educate their children about the role money will play in their life as soon as possible. If that's the case, it could be worth opening a Young Saver account instead of - or as well as - an ISA.
The main difference between a Young Saver account and an ISA is that children can access their Young Saver account much earlier (usually once they turn seven), meaning they can pay money in and withdraw it.
While this may sound like a recipe for disaster to some, this approach allows you to teach your kids about the value of money and the importance of saving from a young age in a hands-on fashion which is more effective than simply trying to explain to them what banks actually do. It also encourages them to put what they learn into action and begin saving for their future at an early age. By helping them get into healthy financial habits now, you'll increase your child's chances of having a more financially stable future.
Unlike ISAs, there are no limits on the amount that can be paid into a Young Saver account, making it a great way to save small or large amounts.
At Leeds Credit Union, anyone with one of our Young Saver accounts can access their money instantly, make unlimited withdrawals and, when you turn 18, you'll automatically have access to all our other services too.
To set up a Young Saver account, simply apply at any of our branches, online or download the application form here. For more information, click here.We also offer Family Loans of up to £500 to families in receipt of Child Benefit. Find out more here.
Leeds City Credit Union is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (FRN 213369).
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