All parents want the best for their children in the future, and want to help them out as much as they can. Setting up some savings for their future can be a great way to help them. They could use the money for University, an apprenticeship or for a deposit on a house. But what are the best ways to set up these long term savings?
The average student leaves University with student debts of over £50,000. University can be a very expensive experience. Saving for a house is getting harder too, and your children are sure to be very grateful for something to put towards the deposit for their first home. Saving for University can be hard, even if they leave in accommodation like the student accommodation studio by Fortis, which are designed to be budget friendly. If you save early, you can give them quite a bit of help.
Junior Cash ISA
Open a Junior Cash ISA for your children. With an ISA, you can save up to £4260 each year. Your child will be able to access the money when they reach 18, and use it to fund studies or a home. The big advantage of cash ISAs like this is that they are tax free, so you won’t lose money on making savings
Junior Stocks And Shares ISA
Instead of a Cash ISA, you could opt for a stocks and shares ISA. These can have much greater returns than a cash option, but is higher risk than a normal savings account. To balance out the risk, spread your investments across a few different markets and sectors.
If you’re saving for your children, you will be less likely to be impacted by short term swings in the stock market, as you won’t be wanting to cash out your investments for a while, giving your savings plenty of time to grow.
Pension Lump Sum
If you’re an older parent, you could consider helping your children with a lump sum from your pension. Start saving as much as you can as early as you can, and you should be able to save up a generous amount.
Pensions are a tax efficient method of saving. At the moment, you can withdraw up to the first 25% of your pension as a lump sum tax free. If you’re 55 or over, you can withdraw this sum and use it fund your children through higher education. If you do want to do this, take advice from a professional, so you don’t end up with less money for your own retirement.
You could invest in offshore bonds. Offshore bonds mean that your bond is an investment vehicle to control how much tax you pay, who you pay it too and when you pay. They are sometimes called portfolio bonds or tax wrappers. Bonds are set up by life insurance companies. They will set up the bond in a country with a favourable tax regime. You won’t have to pay tax in the UK on these bonds if you don’t bring them into the UK as income or capital. Again, be sure of the tax rules wherever you take out the bonds, and ask an expert to help manage this risky process.
How do you save for your child’s future?