Children's Corner

 If children are given a good financial start in life, it can give them a solid base from which to tackle the demands of managing money when they grow up. It can teach them the importance of saving and investing and prepare them for the major expenses they are likely to encounter, such as paying for further education, buying a car or their first home, or getting married.

Naturally, parents and grandparents are keen to help and if they use their gifts of money wisely and well, they can make a significant and welcome contribution. And we are not talking only large sums running into tens of thousands of pounds. Regular modest amounts put away in the right place can soon add up to meaningful amounts.

 The principles of investing for a child are much the same as for an adult. Decisions must be made on how much is to be invested, how long for and where. A child's tax status must also be considered, and there are other rules and regulations which must be taken into account.

The purpose of this page is to introduce the concept of savings for children and to explain how to get the most out of your money.

 National Savings, which is backed by the government, offers a range of savings schemes which are suitable for children. Available from the Post Office, they include: 

Individual Savings Accounts

Click on jigsaw shape to go directly to I S A section to find out more.

 National Savings, which is backed by the government, offers a range of savings schemes which are suitable for children. Available from the Post Office, they include:

 The Ordinary Account can be opened with £10 and offers instant access to your money (the minimum for each deposit is also £10). The account currently pays 1.0 per cent interest on balances up to £500 and 1.1 per cent on higher balances. The first £70 of annual interest is tax-free.

 The Investment Account offers better rates of interest but one month's notice is required for withdrawals. The account currently pays 3.3 per cent gross on balances under £500 rising to 4.60 per cent on balances of £50,000 and over. The minimum investment (and subsequent deposit) is £20.

 National Savings Children's Bonus Bonds. These long-term, tax-free investments can be bought by anyone over 16 for anyone under 16, and can be held until the child is 21. The bonds pay a guaranteed interest rate for every five years they are held. The current issue of the bond is paying 4.85 per cent a year, so £1,000 invested now will be worth £1,267.19 in five years. The minimum investment is £25 and the maximum holding in any issue is £1,000.

 Premium Bonds. These are not strictly an investment as the bonds do not earn interest. Instead, each bond is entered in the National Savings monthly draw and there is the chance to win between £50 and £1 million, tax-free, in prizes. The bonds can be converted back into cask at any time. Anyone can own Premium Bonds although you have to be 16 or over to buy them. The minimum investment is £100 and the maximum is £20,000.

(note: Nat Savings Figures correct as at 28/7/99)

• Investing in individual shares can be a high risk strategy. The best way to reduce the risk is to invest in a wide range of shares. This means your fortunes are not linked to a small number of companies. A collective investment gives you this spread of share holdings.
  
• Children under 18 can hold shares in their own name and are entitled to any benefits or perks that come with ownership. But children cannot buy or sell shares unless they have parental consent.
  
• Children cannot hold shares via a tax-efficient Individual Savings Account. This means that any dividends or profit made when selling their shares may be liable to tax.

 The range of savings and investments schemes which are suitable for children falls into two main categories: those where there is little or no risk to your capital; and those where there is an element of capital risk but the potential rewards are higher. 

 Schemes which involve no risk to capital include deposit-based savings accounts in a bank or building society. National Savings Children's Bonus Bonds and Premium Bonds. The only potential risk is that the bank, building society or the government goes bust an extremely unlikely eventuality.

Click on jigsaw shape to go to savings section and find out more

• Deposit-based savings accounts pay interest on your savings and there is no risk to capital.
• You can open a bank or building society savings account for a child with as little as £1. Children's accounts often pay higher rates of interest tan standard savings accounts, with the best rates often being paid by small regional building societies.
• As well as being a safe way to save for children, these accounts can also be ideal for teaching children how to handle money. The larger banks and building societies often publish magazines for young savers which include useful money management tips, as well as ideas on budgeting and saving pocket money or money earned from a part-time job.
• Interest earned from a bank or building society account is normally taxed at 20 per cent before it is paid. But remember that children enjoy a full single person's income tax allowance (currently £4,335 per annum). This means they can apply to have their interest paid without deduction of tax.

 Savings accounts and National Savings are ideal for investors who do not want to take any risk and for those looking to save short term. But if you are looking to achieve better returns you should consider investing in the stock market.

 Over the long-term, the statistics show that investment in the stock market has produced better returns than savings accounts. And share investment differs from a deposit in a crucial way as it has the opportunity for what is termed `A capital growth.` 

 Consider £1,000 placed on deposit. It will earn interest, but if you draw that interest off, the £1,000 will remain the same. In the meantime, take £1,000 invested on the stock market. It should generate dividend income, which can be taken as the equivalent of interest. But the value of the shares held can also rise, which means the £1,000 can also grow.

 So, you get the potential for income and growth `A double whammy of share investment.`

 But we always need to remember that share prices can go down as well as up. This means your capital is at risk. If things go badly, you get back less than you put in - or you might lose the lot. But you can, of course, take steps to minimise the chance of this happening.

 There are a number of ways to invest in the stock market. For example, you can invest directly in individual shares or in what are termed `a pooled or collective investment`, such as unit trusts or investment trusts. This is where your money is added to a pot containing other people's investments to create a powerful fund that can trade in shares and other financial products. Your portion of the fund then rises or falls in value in line with the overall performance. 

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Let Rupert teach you about money.