Every parent wants to give their child the best start in life and in the current economic climate mums and dads should be considering their options even more carefully. This guide is our advice for parents on how to make effective savings for the family online and offline.

Specialist children’s savings accounts

Most banks and building societies have a children’s savings account and they are easy to set up, with many only needing a £1 deposit. These sorts of accounts give parents instant access to their money and are great for saving up for child-related expenses such as school trips and to use as pocket money accounts. But beware of getting lured in by gimmicky gifts in lieu of decent interest rates! Read up on what to look for in a children's savings account with these free, in-depth, understandable brochures.

Tax

Most people assume that their children’s savings are tax-free but there can be tax implications for you and your child so it’s important you understand the rules. Basically children have the same personal tax allowance that you do: £6,035 a year. This means that your children can earn interest or income up to this amount without paying tax – plenty for most modest children’s savings accounts. But be careful, this rule doesn’t apply when parents put money away for their children. To stop mum and dad taking advantage of their children’s tax allowance, a child can only earn up to £100 interest in a year on money saved or invested for them by a parent. If they earn more than this, the income is taxed as if it was the parent’s. So that the bank or building society don’t take the tax automatically from your child’s account, make sure that you fill out a R85 form. For free information on children and tax, try this amazing free guide from St James's Place.

Child Trust Funds

In the UK, if your child was born on or after 1 September 2002, he or she is eligible for the Child Trust Fund. The CTF was introduced by the Government to help teach children about saving, while encouraging parents to build up a nest egg for their child. Parents, family and friends can invest up to a combined total of £1200 per year tax-free, with the Government giving each child a head start of £250 when they are born and £250 at age 7 (this figure doubles for low-income families). The money is in the child’s name and they inherit the fund when they turn 18. According to Family Investments’ calculations putting away £26 per month from when your baby is born could give them a £10,000 head start once they reach 18! (Assuming that investments grew in a stakeholder account at 6.75% per year over a full 18 year term.)

Make sure you go to a specialist provider that you can trust with your family’s finances and who can give you the highest level of service, such as being able to manage your account online. More information on Child Trust Funds.

Saving for adulthood

There are still options for parents with children born before September 2002, such as taking out a unit trust for their child. A unit trust is a collective investment where investors’ money is pooled together with others and managed by a specialist fund manager. A children’s version can be held in trust for the child until they are 18 and as a trustee you stay in control of the investment until then. If you go with a specialist provider, such as Family Investments, they will make the process of setting up a trust really easy and accept smaller payments than the big investment houses.

For a lucid and comprehensive guide to child trust funds, we've found some fantastic free brochures give you the essential information on investment, as well as some clever inside tips. Click here to get a free investment guide.

Premium bonds

Also think about premium bonds. You can buy between £100 and £30,000 worth and although your child won’t get any interest, each bond is entered in a prize draw every month, which is fun, and prizes are tax-free. Your money is safe - but beware: they can only be bought in units of £100.

Going green

Finally, when thinking about investing for children, consider products which provide an ethical investment option and help provide a brighter future for all. They'll only get more popular - we guarantee it.

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