Securing Your Child’s Future: The Best Way to Invest Money in the UK

Securing Your Child’s Future: The Best Way to Invest Money in the UK

With the average wage in the UK standing at £35,000 and the average house price soaring to £285,000, the importance of securing your child’s future financially has never been more crucial. The rising cost of living and inflation in housing prices highlight the need for giving children a financial head start, making the best way to invest money in the UK a key topic for parents and guardians. Finding the best way to invest your money in the UK, from investment accounts to deciding on where to invest money, is essential for ensuring that even small, regular contributions can accumulate, offering significant support to your children as they grow. This introduction will guide you through various strategies, including the best way to invest small amounts of money in the UK, ensuring your efforts pave a stable financial path for the next generation.

1. Junior Individual Savings Accounts (JISAs)

Junior Individual Savings Accounts (JISAs) present a compelling option for parents aiming to secure a tax-efficient future for their children. These accounts allow annual contributions up to £9,000, with the appealing feature of being free from both capital gains and income tax. There are two main types of JISAs: the cash JISA, where interest grows tax-free, and the stocks and shares JISA, where investments can potentially increase in value, also without tax implications on the gains.

Eligibility and Access

To open a JISA, the child must be under 18 and reside in the UK. Importantly, children who already have a Child Trust Fund (CTF) cannot simultaneously hold a JISA. However, transitioning from a CTF to a JISA is possible and might be advantageous due to potentially lower fees and better interest rates offered by JISAs. Once a JISA is set up, only the registered contact—usually a parent or guardian—can manage the account, though the funds unequivocally belong to the child. Control of the account can be passed to the child at age 16, but withdrawals are restricted until they turn 18.

Investment Choices and Safety

Parents and guardians can choose between cash or stocks and shares JISAs based on their investment preferences and risk tolerance. Cash JISAs offer a safer, interest-earning saving method, akin to traditional savings accounts. In contrast, stocks and shares JISAs allow investment in a range of securities, offering higher potential returns but with greater risk. Regardless of the type, the Financial Services Compensation Scheme protects these investments up to £85,000, ensuring safety against institutional failures. This protection, combined with the tax-free status and flexible contribution options from any individual, makes JISAs an attractive long-term investment strategy for a child’s future.

2. Child Trust Funds (CTFs)

Child Trust Funds (CTFs) were a significant initiative launched by the UK government in 2002, designed as long-term, tax-free savings accounts for children. These accounts were automatically set up for children born in the UK between 1 September 2002 and 2 January 2011, with the government contributing initial amounts to kickstart the savings process. The primary aim was to encourage positive financial habits and provide a financial platform as children reached adulthood.

Eligibility and Contributions

To be eligible for a CTF, children must have been born during the specified dates and their parents must have been receiving Child Benefit. The government initially deposited £250 (or £500 for low-income families) to open these accounts, with a similar amount added when the child turned seven. Family members and friends could also contribute to the CTF, with the total annual contribution limit capped at £9,000. These contributions grow tax-free, providing a potentially substantial fund by the time the child turns 18.

Types of CTFs and Access

CTFs were available in three main types: cash CTFs, which offered tax-free interest; stakeholder CTFs, which invested in a mix of stocks and were capped at a certain charge; and shares-based CTFs, which invested directly in the stock market and carried higher risks and potential returns. At age 16, children could take control of their CTF accounts, although withdrawals were only permitted once they turned 18. This setup not only helped in building a nest egg for future needs, such as education or a first home, but also introduced young people to the concepts of saving and investing.

Transition to Junior ISAs

Since the introduction of Junior ISAs (JISAs) in 2011, no new CTF accounts have been opened, but existing accounts continue to benefit from their tax-free status. Holders of CTFs have the option to transfer their savings to a JISA, which might offer lower charges and better returns. This transition is a crucial consideration for maximising the potential growth of the funds by accessing a broader range of investment options. Parents and guardians play a pivotal role in deciding whether to switch to a JISA or continue with the existing CTF until it matures when the child turns 18.

a pile of british bank notes in £5, £10 and £20 denominations with pound ocins on top of the notes.

3. Premium Bonds

Overview of Premium Bonds

Premium Bonds, offered by National Savings and Investments (NS&I) on behalf of the UK government, provide a unique and exciting way for children under 16 to start saving. These bonds allow any adult to purchase them on behalf of a child, nominating a responsible person, usually a parent or guardian, to manage the bonds until the child turns 16. The investment can range from as little as £25 to a maximum of £50,000, making it accessible regardless of the budget.

How Premium Bonds Work

Unlike traditional savings accounts, Premium Bonds do not earn interest. Instead, each bond is entered into a monthly prize draw, where winners are selected randomly to win tax-free cash prizes. The prize fund rate currently stands at 4.40% annually, and the odds of any single bond winning are 21,000 to 1. This setup makes Premium Bonds a fun introduction to savings and investments for children, offering the thrill of potentially winning big while ensuring the security of their invested money.

Benefits and Considerations

Premium Bonds are particularly appealing because they offer flexibility and liquidity. Bonds can be cashed in at any time without penalty, providing easy access to funds when needed. Additionally, all investments are backed by the UK government, ensuring 100% security. However, it’s crucial to note that there’s no guarantee of winning, and the money invested in Premium Bonds does not grow unless it wins in the prize draws. This aspect may not suit those seeking guaranteed returns or a regular income from their investments.

4. Children’s Savings Accounts

Opening a children’s bank account is not just about saving money; it’s a prime opportunity to teach young ones about financial management. Many banks and building societies offer specially designed accounts for children under 18, with features that cater to educational purposes. For example, accounts like the HSBC My Savings and Coventry Building Society Young Saver not only provide a safe place for money but also introduce children to the basics of banking, with the added benefit of competitive interest rates to boost their savings over time.

Types of Children’s Savings Accounts

Children’s savings accounts vary widely to meet different financial needs and goals. Here’s a quick look at some options:

  1. Instant Access Savings Accounts: These accounts, like the Beverley Junior Cash ISA, offer easy access to funds, making them suitable for children to learn transactional banking.
  2. Regular Savings Accounts: Accounts such as Coventry Building Society Young Saver encourage regular deposits with higher interest rates, ideal for consistent saving habits.
  3. Fixed-Term Savings (Bonds): For longer-term goals, products like the Saffron Building Society Two Year Fixed Rate Children’s Bond lock funds away at a fixed interest rate, offering higher returns at the cost of liquidity.

Considerations for Choosing the Right Account

When selecting the best children’s savings account, consider factors like interest rates, access needs, and the educational value of the account. Regular savings accounts often require monthly deposits but offer higher interest rates, rewarding regular saving behaviour. On the other hand, fixed-term savings accounts provide higher returns for those who can afford to lock money away. It’s also beneficial to use a savings search tool to compare rates across various banks and building societies, including smaller institutions that might offer more competitive rates.

5. Pensions for Children

Understanding Children’s Pensions

A child’s pension, such as a Junior Self-Invested Personal Pension (SIPP) or a stakeholder pension, is established by a parent or guardian for a child under 18. These pensions share many features with adult pensions, including eligibility for tax relief. For instance, a maximum of £2,880 can be contributed annually, which the government can top up to £3,600. Although the child takes control at 18, they must wait until they are at least 57 to access the funds, aligning with current pension regulations.

Types of Children’s Pensions and Their Benefits

Children’s pensions come in two main forms: Junior SIPPs and personal or stakeholder pensions. Junior SIPPs offer a broad range of investment choices, giving control over the retirement planning process. In contrast, personal or stakeholder pensions involve selecting a provider and investing in available funds. The advantages of starting a pension for a child include the power of compound interest, which can significantly increase the value of small, regular contributions over time. Additionally, these plans introduce children to financial concepts and responsibilities early on.

Considerations Before Investing in a Child’s Pension

While a child’s pension can set a foundation for future financial security, it is essential to consider its implications. The contributions, although aided by tax relief, represent a financial commitment that not every family can manage. Moreover, the returns on these investments are not guaranteed, and the funds are locked away for a long time, potentially diverting resources from more immediate needs. Parents must also stay informed about changes in pension regulations, which could affect their decisions and the eventual benefits received from the pension plan.


Throughout the exploration of securing a child’s financial future in the UK, we’ve delved into a variety of investment avenues, ranging from Junior Individual Savings Accounts (JISAs) and Child Trust Funds (CTFs) to more contemporary options like Premium Bonds and children’s savings accounts, each offering unique benefits and limitations. We’ve underscored the significance of leveraging these financial instruments to not only cultivate a culture of savings among the young but also to provide them with a substantial financial foundation as they transition into adulthood. The critical analysis of these options reiterates the essence of early financial planning and the profound impact it can have on a child’s future economic well being.

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