For most of us Christmas is a time of spending. Savings accounts are emptied and credit cards go into overdrive as we splash out on ourselves, our families and our friends. However, it can also be a great time to save for your kids' futures. Here we show you how.
While you will see your bank balance dip alarmingly over the Christmas period it will most likely be a lucrative time for your children as friends and relatives shower them with money. And seeing as they will already have plenty of toys and presents to keep them happy why not invest this money for them?
The savings may not seem significant now but you would be surprised how quickly they add up.
Investing £50 a month in a child account paying 7.5% AER could add up to £18,155 after 16 years. With an extra £150 invested each Christmas, the child would finish with £22,544 – or over £4,400 more.
“It is vital to educate children to start saving at an early age. While they may not be too keen to forsake the latest gadget for a savings account, our research shows tucking away the cash sent from relatives, albeit sometimes small amounts, soon adds up and can really help kickstart adulthood,” says Kevin Mountford, head of savings at moneysupermarket.com.
While much of the news in recent weeks has been devoted to increases in the cost of credit, it is important to remember that interest rates on savings accounts are also on the up. The Bank of England has hiked its interest rates five times in the past 15 months, so depositing money in savings accounts is becoming an increasingly wise investment.
“There is a great selection of children's savings accounts available with rates over the current Bank of England base rate of 5.75 per cent, and there's an extra boost in the form of tax free interest,” says Mountford.
UK lenders are offering a wide range of child savings accounts, including easy access accounts, bond accounts and child trust funds. Recent research by moneyhighstreet.com has highlighted some of the best deals in each category.
If you are looking for flexibility, instant access accounts are the best choice as they allow you to make deposits and withdrawals when you want to. With an AER of 7.5% the research identifies Nottingham Building Society's Childrens Regular Saver Issue 3 branch based account was the best instant access account. Chelsea BS and Yorkshire BS also fared well in comparisons.
Child bond accounts and child trust funds offer higher interest rates but much less flexibility. Many products penalise you if you withdraw within an agreed term or fail to make regular deposits.
There are also other catches to look out for. For example, Halifax's Childrens Regular Saver bond account offers an AER of 10% for the first year, but this drops to 6.05% thereafter. So you should do your homework carefully and watch out for interest rates that are inflated by bonuses.
Even if you can only manage to put a little bit aside each year towards your child's future you should start as soon as you can. And this is also something you should think about for yourself.
Savings are probably the furthest thing from your mind as Christmas approaches. However, you might want to start making plans to start the New Year on the right foot. With higher interest rates and an uncertain economic climate it may be wise to hold off on borrowing and concentrate on saving, at least in the short term.