How to invest for children
- 1). Open a child’s savings account. Most high street banks provide a range of savings accounts specifically designed for young savers. These are often long-term investments offering attractive interest rates. Interest accrued on children's savings accounts are taxable. However, you can avoid paying tax altogether by completing form R85 from the Inland Revenue if the interest earned is less than the child's investment allowance of £6,475 (tax year 2010/2011).
- 2). Invest in children’s savings bonds from the National Savings & Investment (NS&I). This government initiative is a five-year fixed interest investment plan intended for children under the age of 16. As a parent, you can invest as much as £3,000 per child tax free. The Children’s Bonus Bonds can be cashed in before the five-year investment period, but you may not earn any interest if you do so during the first 12 months. You can apply for Children’s Bonus Bonds from the Post Office or by post to the NS&I.
- 3). Invest in an individual savings account (Isa). Isas were launched in 1999 to replace previous savings schemes, Peps and Tessas, and although they are not provided directly to children, you may find their tax-free status an attractive opportunity to invest on your children’s behalf. For the tax year 2010/2011, you can invest as much as £10,200, half of which can be held in a Stocks and Shares Isa and the remaining half in a cash Isa tax-free. Banks provide Isas with varying interest rates, so it is important to search the market for the best possible account.