6 clever ways to save for your child's future

Teaching children about money from an early age can help set them up for a better financial future. As part of this, it’s important to consider what to do with any money your child earns or is gifted by friends and family over the years. 

There are several different options you can explore. If your child is fairly young, you might want to use a pocket money app, so that you can keep an eye on your child’s spending. On the other hand, if your child is older, you might prefer to give them more independence and look for the best bank accounts for kids. Then there's also savings accounts, Junior ISAs, pensions and the pros and cons of pocket money to consider. 

Head of education at wealth management firm Killik & Co, Tim Bennett, told us: “Young adults face ever increasing financial challenges, ranging from affording their first home all the way through to paying for life after work. Fortunately, they have one thing on their side – time. Combined with parental and grandparental support, it can be a powerful ally, especially when that support is put in place from birth.”

If you're unsure how to best start saving for your children, or whether you should open a bank account for your baby, we've got you covered. 

1. Open a bank account 

Traditional children’s bank accounts can usually be opened once your child reaches the age of 11. They work in a similar way to adult accounts but don’t come with an overdraft. Your child might be offered a debit card or cash card with the account. 

Alternatively, pocket money apps, such as GoHenry, HyperJar Kids and NatWest Rooster Money, can be opened by kids from the age of six. These usually come with a prepaid card and parents can track and monitor spending via the app.  

Pros

• Encourages children to manage their money
• Pocket money apps can enable parents to set saving goals and spending limits
• Some bank accounts pay interest
• No overdraft facility so kids can’t get into debt

Cons

• Many pocket money apps have a monthly fee
• Bank accounts have less parental control
• Can't be opened from birth.

 2. Open a savings account 

 Many savings accounts can be opened by parents or grandparents as soon as a child is born. Depending on the account, your child might be able to manage it themselves once they turn seven.

You can choose from easy access accounts that let you withdraw your money when needed, regular saver accounts that require you to save a set amount each month for a year, and fixed rate bonds.  

Finance expert at lender Cashfloat, Sarah Connelly, says: “Fixed rate bonds offer a higher rate of return if you are willing to commit your savings for a period of up to 5 years. However, withdrawing your funds before the end of the fixed term will result in a substantial financial penalty.”

Another popular option is to open a Junior ISA (JISA) for your child, but funds won’t be accessible until your child reaches the age of 18. Marketing director at EQ Investors, Ben Faulkner, says: “JISAs are tax-free saving accounts that allow you to save up to £9,000 each year in a cash deposit or by investing in stocks and shares. There is no tax to pay whilst the money grows inside the JISA account, and all withdrawals are tax-free.”  

Pros

• Can be opened from an early age
• Wide range of accounts to choose from
• Interest is earned on money held in the account

Cons

• JISA money belongs to the child - you cannot get back payments once they’ve been made
• Some savings accounts have restricted access

3. Invest it 

Saving money for your child over the long-term means it will have plenty of time to grow. Rather than keeping all of your child’s money in cash, it can be advantageous to invest some of it in the stock market - usually through a Junior ISA.

Founder of budgeting app HyperJar, Mat Megens, says: “For the more adventurous, Junior Stocks and Shares ISAs are a great way to introduce your child to risk and longer-term time horizons for investments. These have the potential to lose value depending on what happens in the stock market or gain a lot.” 

Pros

• Can result in higher gains
• Easy to invest through a Junior ISA

Cons

• Higher risk, so you could end up with less money than you paid in
• You can only pay up to £9,000 into a JISA each tax year.

4. Use a money box 

 A money box or piggy bank can be ideal for very young children. It can help them understand what the different coins and notes look like and how to use money to buy items. It can also be a good way to start the process of earning pocket money, helping your child to learn the importance of saving up for what they want. 

Pros

• Easy way to help young children start to understand money
• Can encourage children to save
• Good for holding pocket or birthday money

Cons

• Children won’t earn interest on their savings
• Money is easily accessible which could encourage children to spend it.

5. Buy premium bonds 

 Anyone can buy premium bonds for children under the age of 16. Premium bonds are issued by National Savings and Investments (NS&I) and rather than earning interest, you are entered into a monthly prize draw with the chance of winning between £25 and £1 million tax-free. 

HyperJar’s Mat Megens, says: “Premium bonds can be a fun way to save a lump sum for your kids. There's always the chance - however remote - that your kids could win big, and the monthly draws add some fun to the idea of long-term saving.” 

Pros

• Minimum investment of £25
• Chance of winning up to £1 million every month
• Your money is 100% backed by the UK Treasury

Cons

• You might never win anything
• The value of your original investment will be eroded by inflation.

 6. Pay into a pension 

 A less obvious way to save for your child’s future is to start a pension for them. You can do this as soon as your child is born.

CEO of financial adviser platform Unbiased, Karen Barrett, explains: “If you’re happy for them to wait until they retire, then a Junior Sipp might do the trick. The big attraction here is that everything you pay every year up to £2,880, receives a 25% government boost in the form of tax relief. However, the earliest they will be able to access the funds is age 57.” 

Pros

• Parents can set up a pension and it will be transferred to their child when they reach 18
• You’ll benefit from a 25% government top-up
• Any growth in your child’s pension is free of tax

Cons

• Funds will be locked away until your child reaches the right age - this is currently 55, rising to 57 in 2028
• Your investment can go up or down/

 What should you consider when deciding what's best? 

There are a number of factors you’ll need to consider when weighing up what to do with your child’s money, as Sammie Ellard-King, founder of investment website Up The Gains, explains: “Consider factors like your financial goals, your child’s age, your risk tolerance, and your preference for accessibility of the funds.”

Think about whether you want your child to be able to use their money as and when they need to, or whether you’re looking to build up a savings cushion for your child to fall back on when they’re older. Also consider factors such as how much you can pay into each account and who can open and manage the account.

Sammie Ellard-King adds: “It's always a good idea to consult with a financial professional to discuss your specific situation and make an informed choice that best meets your family's needs.”