UK Child Savings Accounts Explained
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Bringing up a child is expensive and to siphon off some amount of money from your earnings to save for a rainy day is a good decision. When you invest money periodically for the benefit of your child, you will be in a better position to pay off their university fees or buy them their first car. To help you achieve these goals child savings accounts were introduced.
The Child Trust Fund (CTF) is a child saving scheme that has been developed by the British government. All the children born after 1st September 2002 are eligible to claim the benefits under this scheme. The best advantage of the CTF is that there is no income tax or capital gains tax to be payable under this fund. It has mainly been started by the government to encourage families, with children, to save. There is no minimum age to open a child savings account and the account can be run till the child is 18 years of age.
Nearly 70 banks and societies offer child savings accounts. So, as an investor it can be confusing as to which is the right choice.
The following points should be kept in mind before investing in child savings schemes:
Do an in-depth research on the experience and credibility of the service provider. Remember, this is your hard earned money. So, be careful before investing. Find out who are the other customers of this bank/ society and ask them for their honest opinion.
Check upon the interest rates offered. Some may offer good interest rates but it may be a new and risky option. So, make out your balance between risk and return.
Find out if the scheme can be easily shifted whenever you want to. This is an important option as this gives you freedom of operating your account. Only if this option is available, you will be able to shift your account if interest rates fall.
Check on the terms and conditions connected with withdrawals. Some may limit the number of withdrawals while others may insist on advanced warnings about withdrawals.
Many of these schemes offer free gifts like teddy bears, CDs, gift vouchers and toys. However, don’t be led by these gifts when making your choice. Remember, these are just advertising gimmicks. You should look at more important features like safety of funds and rate of return before making your decision.
Investing in bonds gives a higher and a fixed rate of interest. However, you cannot shift or withdraw from bonds as they have a fixed lock-in period.
Normally, only the child listed by you can access child savings accounts. Also, the child may be able to access it only after 18 years of age. Opening a child savings account, and involving your child in operating it, is a very sound idea. This will teach the child the value of money and the importance of savings. A well-informed child is sure to grow up with a good financial mindset.
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