How to save and invest for your little one's future

We all want the best for our children and, for many of us, laying some solid financial foundations for their childhood needs, education and adult life is part of that. If you’re looking to start saving for your child or children, the options can feel overwhelming - but we can help you to figure out where to start.

Reasons to save or invest for your child’s future

Once you get over the initial financial impact of adding a child to your family, thoughts often turn to what you can do to support them financially in the future. Part of that is teaching them about how to manage money, but many parents also hope to give their child as much of a financial springboard as they can afford to, to prevent them from struggling too much in young adulthood, or to help them to hit life milestones that could feel unaffordable without a little help. Building up some savings for your child needn’t turn you into the ‘bank of Mum and Dad’; - it could just be another way to support them as they make their way in the world.

A great reason to start saving or investing for your child when they’re young is the potential for that money to grow. Cash savings could benefit from compound interest, while investments left over a longer period of time may be better at weathering fluctuations in the stock market and could see good returns. You can even open and pay into a pension for your child, potentially giving that money decades to grow and providing some retirement security for them.

Types of saving and investment accounts for children

There are a few different ways to save for your child, and it’s important to take some time to consider the right option for your family. If you prefer cash savings, you can open a Junior Cash ISA (Individual Savings Account), where your child’s savings will earn interest, and where you can deposit up to £9,000 per year for your child, either in lump sums or regular monthly payments. This account belongs to your child, and they will automatically gain access when they turn 18. If you want more flexibility, you could also look at the regular savings accounts or current accounts on offer for children at different banks and building societies, as many of these also offer interest which will help your child’s money to grow.

If you’d like to invest for your child’s future, a Junior Stocks & Shares ISA might be the right option for you. The money that you save is invested in the stock market, and with most accounts you can set parameters for how you would like this to be done, including setting your risk level and specifying whether you would like your money to be invested ethically.

Money saved in a JISA has the potential to earn compound returns - where the money that you earn on your investments is reinvested to make more money, and again you can invest up to £9,000 per year. As with a Cash JISA, the money legally belongs to your child, and they can access it at the age of 18. One of the biggest things to note is that, with investing, your capital - i.e. the money that you pay into the account, is at risk, and its value can go up or down. Leaving money invested over a long period of time can help to reduce this risk, but there is always a chance that your child could get back less than you have paid in.

How to get started

There are a few different ways to get started with saving for your child, depending on how you’d like to approach the situation. If you have a lot of money to save or invest for your child’s future, or have a lump sum from a windfall or inheritance to contribute, it could be a good idea to discuss your plans with a financial advisor or planner to ensure that you’re making the best decision.

However, if you’d like to take a more DIY approach, you can start by researching the different accounts that are available and the pros and cons of each, including the interest rate or return, and any fees that are applied to the account. Make a decision about whether you would like to use cash savings or investments, or a little bit of both, and then calculate how much you can afford to contribute each month. Most accounts will allow you to set up a standing order or direct debit, so that your child’s savings are essentially treated like another bill, and you don’t have to do too much manual legwork each month to keep your contributions ticking over.

How much should you save?

This answer will vary hugely from family to family, so the answer is simply to save an affordable amount for you. Ensure that you have enough in emergency savings for your immediate needs before committing to investing in your child, because anything urgent that comes up in the short term has the potential to impact them, too.

Over the course of your little one’s childhood, even small, regular amounts will add up to a healthy sum, so don’t put too much pressure on yourself to save a fortune right from the moment they are born. Choose an affordable amount and set the saving habit early, then increase your contributions later on, as and when you can afford to. You can also direct family and friends looking to support your child or give a gift to pay it into their savings account, as many providers allow additional contributors.