Finance: How to invest for children

Fill the piggy bank

Cash deposit accounts are popular and can be ideal for short to medium-term savings with easy access. Most banks and building societies offer special accounts for children or for adults to open on a child’s behalf. As children tend to be non-tax payers, arrangements for interest to be paid gross on these deposit accounts can be made by completion of the appropriate form.

Invest in the stock market

If you’re considering an investment with a long-term horizon history suggests that the stock market can be a good way to generate wealth. Child savings do tend to have long-term objectives – if you are investing for a child, time is something you have on your side. Investing in the stock market carries a level of risk to the capital you invest but it can also offer greater potential for both income and capital growth.

Trust in trusts

Investment trusts are listed companies which invest in shares of other companies traded on one or more of the world’s stock markets. They give investors the potential to benefit in two ways – income from dividends paid, as well as from capital growth through the potential increases in share price. The popular choice for investing for children tends to be global trusts. As well as providing a worldwide spread of investment risk and opportunity, global investment trust companies are among the most cost effective of collective vehicles, with ongoing charges to customers generally less than 1 per cent.

Child savings schemes

Many investment trusts offer savings schemes for children. Scheme charges tend to be very low, with no initial and often no annual charges, whilst allowing designated plans or, more formally, bare trusts to be set up at no extra cost. Adults can invest on behalf of children by making regular investments, usually starting from £25 per month, as well as by paying in lump sums of £50 upwards. The amounts invested can be easily altered, monthly investment can typically be stopped and restarted at any time, and money can usually be withdrawn without penalties.

Investing with care

It should be remembered that the value of stock market investments – and the income from them – can go down as well as up and investors may not get back the amount originally invested. Saving for children should have the same aims as for adults – building a balanced and diversified portfolio of savings and investments across a range of asset classes, the suitability of which being determined by their fulfilment of short-term or long-term requirements.

• Sherry-Ann Sweeting is marketing manager at Scottish Investment Trust