What are the Best Investments for your Children?

What is the best investment you can make on behalf of your children? Much of this depends on how much you have available to invest and the regularity of the payments you can make. This article looks at some of the obvious, and less obvious, options.

Savings Account

The advantage of making payments into a regular savings account, whether regular payments or a larger one-off payment, is that it is safe and won’t disappear as it can with riskier investments. You will then earn interest on this, but the downside is that this interest won’t be particularly high compared with other investment products. With most savings accounts you are going for safety over profit.

Junior ISA

The Junior ISA, or JISA, is the new scheme introduced by the government last year to encourage parents to save on behalf of their children. Like an adult ISA, a child ISA is a way of being able to invest without tax being paid on gains. Parents can invest up to £3,600 a year in the scheme on behalf of each child, the equivalent of £300 a month. It works very much like an adult ISA and there is a choice of putting investments into a cash ISA or a stocks and shares ISA. Children are automatically given access to the account set up in their name when they turn 18. The money is locked into the account and can only be accessed once a child turns this age. The tax advantages is the main benefit and it is a good scheme if you can put in close to the yearly limit, although it is also beneficial with lower investments. The Junior ISA is a good option for parents who wish to make regularly savings on behalf of their children’s future.

Using an Adult ISA

An alternative to the Junior ISA is saving for your children through an adult ISA. If you are not already using the £10,680 maximum allowance then this is an option you may consider. There are three advantages of this option. Firstly, it has a higher limit than the Junior ISA. Also, if you don’t think your child is responsible enough to be given a large amount of money at 18, you can wait until you feel it is more appropriate. The other benefit is that you can take the money out should you be in a position where you need it, which isn’t the case with a Junior ISA.

Buying a House on your Child’s Behalf

If you have a relatively large amount of money to invest, then buying a house on behalf of your child could be an option. You will need enough up front for a deposit and be able to make monthly payments for a mortgage. Over the course of time the value of a home should go up so it should be a good investment in terms of growth. Once your child reaches an appropriate age you can then pass the home over to them. They can then either live in the home or they can sell it, leaving them with substantial funds. This is especially a good option if you are likely to own it outright by the time you pass it onto your child – there is no better gift to your children than for them to be able to live rent free and mortgage free. The negative of this is that it is expensive, so you need to know you will have the on-going funds necessary to make the mortgage payments every month.

Andrew Marshall ©