My wife and I are expecting our first child. We’re both keen to set up a savings account for our child where we will be able to contribute on a monthly basis.
Ideally, we would not want the child to access the account until they are 18 or 21. What are our best options?
You may wish to consider opening a Junior Individual Savings Account (Jisa) on behalf of your child. They would not be able to access the money until they are 18 and the maximum you can pay into a Jisa in the 2016-2017 tax year is £4,080, rising to £4,128 from 6 April for 2017-2018.
The benefit of a Jisa is that the money can grow tax-free. This may not seem important with a baby, but children are subject to exactly the same income tax rules as adults so sheltering savings from tax can make life simpler in the future.
Junior Isas can be held in cash or within a stocks and shares investment environment. The long-term returns on a Junior Cash Isa are likely to be very low when compared to the returns that could be achieved from a Junior Stocks & Shares Isa.
If you do not want your child to have automatic access and control of the money at age 18, a Jisa would not be suitable. You could consider saving in your own name, which would allow you to retain control of the funds for as long as you wish. This would also enable you to utilise your own Isa allowance, which in the 2016-2017 tax year is £15,240, rising to £20,000 from 6 April for 2017-2018.
Another consideration would be to save through a discretionary trust. This is the most flexible form of trust and the trust assets are distributed entirely at the trustees' discretion, to any one or more of several beneficiaries.
You could act as trustees, which would give you legal ownership and control over how and when your children receive money in the future.
There are usually ongoing tax consequences of a discretionary trust, so I would suggest you seek advice on this before proceeding.
The Best Junior Isas
Cash Jisa – 3.25% from Coventry Building Society
Stocks and Shares Jisa – Charles Stanley Direct charges 0.25% a year and no dealing charges on funds. The minimum investment is a £500 lump sum or £50 a month.