With the cost of living soaring day by day, it is rather hard to even begin to think about opening a savings account for yourself, much less for your child(ren). Imagine a family of 5 (2 parents and 3 children), their annual income is £35,000 a year, by today’s standards of living it’s really not that enough, yet it is still more than many families who are living below the poverty line across UK. Is there really any point trying to save for the little ones future?
In my personal opinion I believe yes, even if it is £10 a month, imagine by the time they reach to 18 years old and by choosing to deposit money into a tax free savings account your child could potentially have over £2100. Like Tesco’s motto, ‘Every little helps.’
Since 1st November 2011, the government have introduced a new type of savings account, Junior ISA, also known as Junior Individual Savings Account. It is a tax free account, meaning that the interest gained is not taxable. This account replaces the CTF (Child Trust Fund). Children born on or after 3rd January 2011, additionally children that are under 18 and born before September 2002 are permitted to open this savings account. However, not every child is entitled to have one. For those that already have CTF accounts, they are not eligible. Unlike the CTF account, there is no government incentive voucher of £250 to encourage parents and carers to open an account. When the account holder becomes 16, they have the choice to manage the account independently.
Once they turn 18 and withdraw the funds and close the account, it automatically changes into a normal adult Cash ISA. Many critics have suggested how does the government expect the ‘average’ family to take advantage of this new initiative, if they are unable to afford to make an initial deposit? Luckily any family members or friends are able to make contributions into a child’s Junior ISA. Adults are allowed to donate up to £3600 per annum, compared to CTF where the maximum payment is £1,200. Parents and carers are unable to make withdrawals before the child turns 18. Like normal ISAs, there are 2 variations; the standard Junior Cash ISA is solely made up of cash, whereas the Investment Junior ISA consist of investments funds, bonds and shares. Moreover parents will have the ability to deposit between both types of accounts.
In the UK’s current economy, it is increasingly becoming difficult to make any form of savings, yet I would advise all parents and carers to grasp the opportunity of at least opening a tax-free savings account for the children, and then assess their income against their outgoings to truly identify how much they are able to save for their child’s future.
Keep up with our Money Matters Editor La-Toya Kadesha on TWITTER@Toyz305
W| By La-Toya Kadesha