STASHING away £100 a month could leave your kid a whopping £39,000 windfall by the time they turn 18.
If you’re planning on giving your child a head start in life with a wad of cash, we outline how to make your savings go further depending on where your planning to stash your cash.
It comes as teens across the country rip open their brown envelopes to see what A-level results they’ve been given, as thousands of parents delve into their pockets to help send off their child to university.
The Sun asked Hargreaves Lansdown to calculate how much cash you would end up with using five different savings methods.
These are: putting your cash in a jar, using a Halifax Junior Savings Account, a Barclays Junior Savings Account, a Halifax Junior Cash ISA, and a Junior Individual Savings Account (JISA).
Stashing your cash in a JISA will mean you could end up with whopping £38,929, while simply hoarding it will leave you with £21,600 – £17,329 less.
However, while it looks like you could be saving a lot more using a JISA, it’s important to note that you’ll be putting your money at more risk.
While there are cash JISAs that pay a set rate of interest, a stocks and shares JISA will invest in funds and the stock market.
This means there’s no guarantee of making money, and you could get back less than you invest.
It's also important to compare rates to see where you can get the best deal – using a comparison site like Uswitch can help you.
In a jar – £21,600
Simply putting £100 in cash aside each month “in a jar”, or in a 0% interest bank account, will leave you with £21,600 by the time your child turns 18.
This is because your money is not gaining any interest.
However, it does mean that it can be handed over to your child more easily – or be easily accessible in case of an emergency.
Halifax Kids’ Saver Account – £22,521
According to Hargreaves Lansdown personal finance analyst Sarah Coles, popping your cash into a Halifax Junior Savings Account will leave you with £22,521 windfall by the time your child hits 18.
You can earn 1% AER on balances from £1 to £5,000.
However, the rate drops when you hit over £5,000 – you’ll then make 0.1% on any extra cash you’re saving beyond this point.
Barclays Children’s Savings – £23,775
If you put your cash into a Barclays Children’s Savings Account, then you’ll end up with £23,775 after 18 years, Sarah said.
You can earn 1.51% interest on your balance if it’s between £1 to £10,000.
However, once your balance exceeds £10,000, this rate drops, and you’ll get 0.01% on any money you’re saving beyond this point.
Halifax Junior Cash ISA – £26,123
Junior cash ISA – What are the best rates?
BANKS and building societies offer cash accounts that pay an interest rate that can be fixed or variable.
You want to look out for accounts offering 2% plus as these are the best.
At the moment, Darlington Building Society and Bath Building Society both pay the top rate of 2.5% and you can open an account in either by post or in branch. You can open an account with £1.
The Family building Society has a rate of up to 2.4% but but only if you open it with £3,000. If you open it with £1,000 it pays 2.15% and with £1 – £999 you get 1.65%.
Tesco Bank pays a variable 2.25% too and its phone and online account can be opened from as little as £1 as well.
Halifax’s Junior Cash ISA is a tax-free savings account you can tuck away your money into.
Saving £100 a month for 18 years will set your child up with £26,123, Sarah said.
You can earn 2% interest – tax free – on balances worth £1 or more, and this interest will be paid annually into your account each year on April 5.
You can save up to £9,000 in this tax year – and the money is locked away until they turn 18.
JISA – £38,929
A Junior ISA is a tax-free savings account for under 18s where you can save up £9,000 a year.
The annual allowance was more than doubled last year to £9,000. That's the amount you can save tax-free each year.
When you open a JISA, the first decision you need to make is between a cash JISA or a stocks and shares JISA.
Over 70% of Junior ISAs opened are cash savings products.
The cash option is safer, so it’s usually the one people are drawn to first.
Your money is protected up to £85,000 and you know the interest rate is guaranteed.
While stocks and shares JISA can provide a bigger return, you are gambling with your cash.
Sarah said that you could get £38,929 by the time your child hits 18.
But that’s assuming that your JISA is earning 6% a year – but that’s in no way guaranteed, Sarah said.
“You’ll get some better years and some worse years, when the value may actually fall, which is why investment is something you should only consider when you have a time horizon of 5-10 years or more,” she added.
What’s the best way to save?
Sarah said you should weigh up where to put your money into while making your nest egg.
But she said it’s important to consider alternatives to cash savings when you’re putting money aside for the long term for children.
While this is “the right approach” for parents who need a specific sum to hand over on a specific date, giving them the flexibility they need, she said parents should consider alternative savings methods such as a savings account or a JISA.
“If you do opt for a child’s savings account it’s vital to understand how the accounts work,” she said.
“In these cases, for example, once you hit either £5,000 or £10,000, the rate drops to rock bottom, so new payments should be directed into another, more rewarding, account.”
She said stashing cash into JISAs could be a better option for longer term investments.
“When you are putting money aside for the long term, stock market investments have a far better chance of growth than cash,” she said.
“They will go up and down in the short term, but over a period like 18 years there’s a strong chance of riding out short-term bumps to take advantage of long-term growth in the markets.”
We've told you before how you can give your child £18,000 on their 18th birthday by saving just £1.67 a day.
There's even the chance to make your child a millionaire by the time they are 65.
Money saving expert, Martin Lewis, has explained how you need to put £1 in a LISA if you hope to buy your first home in the next 10 years.
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