Many parents want to save for their children’s future and choose to open children’s savings accounts. With many relevant investment products available, deciding on the best one can be a difficult decision. There are many things that need to be considered.
Interest
In some ways the most important factor is how much interest you will gain on any investment. The higher the interest, the better for your child. Although important, it is not the only thing that should be the basis for your decision, and the amount of interest on offer can be affected by other variables.
Risk vs. Benefits
The accounts that offer the better return often carry the biggest risk. This means making the decision purely on the basis of interest rates is not necessarily the best option. It comes down to personal preference; you might decide that it is worth the risk for the possibility of high returns, or you may opt for a safer, lower interest investment.
Flexibility
Some accounts are very limited while others offer a number of options. One example of this is when money can be taken out of the account. Some will have a fixed term and you will be unable to take any money out before this time is up, while other will allow you to withdraw funds if you need them. The prior means that you will have to make sure you can afford to pay into the account any time that you choose to.
When Can Your Child Withdraw From The Account?
Specific children’s savings accounts have certain options with regard to when a child is able to withdraw from their account. Some accounts will enable them to withdraw money as they please, while others will have an age limit. This could be while they are still a child, for example when they are twelve years old. Other accounts are specifically for young adults, so your child will be unable to withdraw funds until (s)he turns eighteen or even twenty-one. You have to decide which of these you would prefer. You may think your child should be able to access their account if they wish, or you might be intending to save for when (s)he is an adult and want an eighteen or twenty-one years of age limit.
Long Term Benefits
Obviously the longer you save for, the more money you will be paying in, and the higher the potential returns will be. Some investment products, though, have particular benefits if you will be paying into the account over a long period. So if you will be paying in from your child’s birth until (s)he turns eighteen, then choosing an account which has high interest over a long period will be a good choice. These same accounts may not offer favourable terms compared with other options if investment is over a much shorter period.
How Much Will You Be Paying In?
Some accounts require payments over a certain amount. These will then offer favourable terms in exchange for this guarantee. The same accounts may not be the best option if paying in smaller amount or less regularly.
Andrew Marshall (c)
