Money talks – planning for your child’s financial future
You have just had a new baby and you are lost in the total bliss of parenthood; the cuddles, the kisses, the slobber, the gummy smiles, the whole nine yards. You are living cloud 9. Then you wake up and realise that even though babies are free, they do not come cheap. They go through nappies and wipes like water down a drain, and those ridiculously cute but pricey sleep suits you bought thinking they could wear it for a few months? Yea…they now fit more like leggings and need to be packed away for the next baby (maybe?). I can now introduce the topic of financial planning for your new family.
Let’s face it, love makes the world go round and all that but money also goes a long way to ensuring the ride is a bit smoother, especially when planning ahead for your baby. Neither my husband nor I were born with silver spoons in our mouths so we appreciated the importance of always considering the financial implications of the decisions we make, on our family. I am what my husband would describe as “tight fisted” when it comes to the purse strings; I haven’t always been this way mind you, but life has taught me to be sensible with what I spend my hard earned cash on and to always be prepared for a rainy day. This trait was certainly not a bad thing when it came to how I managed our finances whilst preparing for our unborn child. Quite simply, if it was a necessity, I didn’t buy it.
Once our son was here we were keen to open up some form of savings/investment account where we could start making monthly contributions for him. Of course, every bank and its subsidiary have savings accounts and lots of jargon explaining why they are the best. It can all get very confusing but I have shortlisted the three types of accounts we considered and what we eventually opted for:
On first glance this type of savings account looked really appealing; after all, they offer one of the highest interest rates on the marketing at over 4% for the first year. Of course, once you delve deeper and read the fine prints there are usually drawbacks. I didn’t like the fact that I could only save a maximum of £100 a month. Secondly after the first year, the funds accumulated is transferred into a Halifax easy-access Kids' Saver account which offers a rate less than half of the first, at about 2%. When you calculate how much interest can be earned in a year, you realise how pants it actually is. So let’s say I save £1000, the interest earned would be about £40, which quite frankly, does not do anything for me. The final drawback is that you are not allowed to make withdrawals from the account until the child is 18 years old unless you are closing the account; sounds like a prison sentence right? What if another bank offers a better deal down the line and I want to switch some funds over? I always prefer to have the freedom to do what I please with the money I save so this was definitely a no-no for me.
NS&I is a government department and offer a range of savings options for both adults and children. We have an premium bonds account with them which I guess is a form of savings lottery where savers have the opportunity to win monthly cash prices ranging from £25 to whopping thousands, based on a draw. Needless to say, we haven’t won the whopping thousands as yet but pockets of change here and there which in actual fact accumulate to more than the interest our money would have earned us sitting in a regular savings account. We opted to open a children’s premium bonds account; the freedom to save as much or as little as we wanted every month was a seller for us, we can also withdraw our funds whenever we please. The shortfall with this type of savings option is that you are not guaranteed to win any interest as it is purely based on the luck of a draw. However, the more you save, the higher the likelihood of winning.
This is another product offered by NS&I and it works pretty similarly to other types of ISA accounts offered by high street banks. With an interest rate of 3.25% per annum which is tax free, it did trump the Halifax Monthly Saver as the rate does not drop after the first year. Again, this is a good option if you want to keep your child’s money in one place until they are 18 years old; there is also no minimum amount required to be debited every month which gives the additional flexibility to save as much or as little as possible (within the ISA allowance each tax year).
The above are just grains of sand in a sea of savings options available but these were just the main ones that stood out for me. Here is to hoping we win big on an NS&I draw soon :) Ps. my husband asked me one evening “what would we do if our son won £50,000? Would we save it all for him or treat ourselves?”….no comment.