Take advantage of tax-efficient savings for the children

Published on Friday 14 November 2008 20:18

BECOMING a parent is a life-changing experience, and on top of having to deal with the sleepless nights there are all the initial expenses arising from such things as nappies, baby equipment and childcare to consider.

However, the real issue is making time to start thinking about long-term financial planning for your child.

It is never too early to start and there are plenty of options available to ensure you are financially prepared for your children's upbringing, and even help them take a step into adulthood with the clear advantage of having some savings under their belts.

All children born after 1 September 2002 are eligible for a 250 voucher to open a Child Trust Funds (CTF) account. Family, friends and even the children themselves can contribute up to 1,200 tax-free a year in total into the account.

There are three main types of CTFs: Firstly, stakeholder accounts such as the Children's Mutual Baby Bond investing in the stockmarket. Secondly, non-stakeholder shares accounts are offered by a range of providers. The third option is a non-stakeholder savings account which offers interest on the money invested.

Children's savings accounts offer the opportunity to invest money for your child in a savings account that is easy to understand and manage.

Some accounts require notice to be given before a withdrawal and these accounts normally offer a higher level of interest than easy access accounts. Bond accounts offer the highest interest, but to receive this, the money invested normally has to be left in the account for a specific period.

You may wish to invest in the stock market for your child. Although the stock markets are volatile and have dropped, shares still remain the asset class that historically performs best over long periods. Investments made for children are usually for the longer term which will benefit from any upturn in the stock markets. Collective investment funds offer a range of stock market investment opportunities and there are hundreds available.

Tax advantages can be gained if you set up the investment in a trust for the child. Several fund management companies also offer access to unit and investment trusts with tailored children's savings plans.

But before deciding how to invest your hard-earned cash to benefit your offspring, it is a good idea to speak to a professional who can help you decide which savings vehicle best suits the individual needs of your family.

You can talk to an Independent Financial Adviser (IFA) who can help you find the best investment for you and your child. To find an IFA in your area, who specialises in savings advice, log on to www.unbiased.co.uk

&#149 David Elms is the chief executive of IFA Promotion