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Monday, April 22, 2013

What are the best investments for children in the U.K.?

Child trust funds and other children's investments
Children's bonds offer a guaranteed rate of return for 5 years


Summary: Read on for a look at some of the best investment options available for parents looking to provide a secure future for their children. 

The financial pages in the newspapers these days make some pretty grim reading – and that can cause some concerns for parents. Deciding on how best to invest in your children's future is one of the most important financial decisions you can make but right now the market looks pretty unappetising. 

Before you get too disheartened by reading reports on the economy, stay positive! There are still some great investment options out there to help you safeguard the future of your children. We've picked out some you may want to consider. 

Junior ISA 


Child Trust Funds were among the best way to invest in the future of your children but they were scrapped in 2011 and replaced by Junior ISAs. 

Unlike Child Trust Funds, the government will not contribute to Junior ISAs but the accounts do have a yearly tax-free contribution limit of £3,600, making them one of the best investments for children – and some offer parents free vouchers if they sign up. 

National savings 


The state-owned savings bank offers Children's Bonds that are often given as gifts to kids by their parents or grandparents. A minimum of £25 must be invested, but no more than £3,000. This investment comes with a guaranteed interest rate over a 5-year period, and is exempt from Income Tax and Capital Gains Tax. 

Pensions 


You might think that saving for your child's investment is a pretty crazy thing to start doing before they've even finished school but it's not as mad as it sounds. Making sure your child is taken care of in the long term is a good idea, especially as in the future pensions are likely to be a fraught issue. State pension ages are projected to go up significantly in the future but anyone in the UK can have a stakeholder pension – including babies. Paying fifteen years of your child's pension will help ensure that as working lifespans get longer, they are well taken care of. 

For something a little different If you'd like something more substantial than a savings account or pension there are a few slightly different options you might like to consider: 
  • Wine: A case of fine port or vintage wine bought from a respectable dealer could accumulate value as the years go by. Increases in the value of alcohol are free from Capital Gains Tax and fine wines have gone up in value by as much as 12% a year in the past so it could be a nice earner – and a fun gift. 
  • Gold: Gold has long been heralded as the safest bet for your money in troubled times so you might want to pick some up for your child. Prices reached record highs thanks to the financial turbulence of the past few years and although the prices have rolled back a bit recently you might want to wait until they drop further before investing. 
  • A forest: You could buy a patch of commercial woodland as an investment in the future of your child. Income from timber sales is free from Income Tax and the rise in value on your trees is also free from Capital Gains Tax so the investment could be sound. Get ready to wait though – it'll be a while until your trees are ready to turn a profit. 

How will you invest in the future of your children?

Image credit: Damien Everett; CC BY 2.0