Children's savings guide: Saving for your child's future

Saving for a child's future can help them prepare for important milestones later in life. The savings built up could make a difference when they are able to access the funds.

You may already have a children's savings account for your little one, but there are plenty of other ways to save, each with its own benefits and considerations. With so many options available, it can be tricky figuring out where to begin. This guide walks you through the different choices, so you can find an approach that feels right for your family and financial situation.

Why save for your child's future?

It gives them a head start. Having savings in place can increase a young adult’s independence by reducing the need to rely on borrowed money.

Time is the biggest advantage you have. The earlier you start, the longer your savings and investments have to grow, and the more opportunity there is for compound growth to build over time.

It teaches the value of saving. Watching an account grow over the years, and eventually taking control of it themselves, can be one of the first real lessons a young person has in managing money.

There's no fixed amount or age you need to start at; what matters is finding a way to save that fits your family and giving it time to build up.

Ways to save for children

There are several ways to save for a child, each with different rules around access, tax, and how long the money will be set aside for. Here's a summary of some of the main options:

Junior ISA

A Junior ISA is a tax-free savings account for children under 18, which essentially replaced the Child Trust Fund. There are two types:

• Cash Junior ISA: Money is held as cash and earns interest.
• Stocks and Shares Junior ISA: The money is invested in assets such as funds, shares or bonds, giving it the potential to grow over the long term. However, the value can go down as well as up.

A child can have one of each, but the £9,000 annual ISA allowance is shared between them. The account must be opened by a parent or legal guardian, though anyone can contribute once it's set up. The money belongs to the child, and it isn't accessible until they turn 18.

Important: A child cannot have both a Child Trust Fund (CTF) and a Junior ISA at the same time. If they have a CTF, it must generally be transferred to a Junior ISA before they can open one.

Child Trust Fund

Child Trust Funds (CTFs) were a government-backed savings scheme for eligible children born between 1 September 2002 and 2 January 2011. The scheme is now closed to new accounts, but existing CTFs can still be paid into and remain invested.

CTFs have similar rules to Junior ISAs: they are long-term, tax-free savings or investment accounts held in the child’s name. Family and friends can contribute, and the money belongs to the child. The child can take control of the account from age 16 but generally cannot access the money until they turn 18.

If you're not sure whether your child has a Child Trust Fund, you can check on GOV.UK, or explore our guide on finding a lost Child Trust Fund. 

If your child has turned 18 and holds a Child Trust Fund with Unity Mutual, they can now access their funds and decide what they’d like to do with them.

For more information on Child Trust Funds, read our guide on ‘What is a Child Trust Fund’.

Child’s Tax-Exempt Savings Plan

Child's Tax-Exempt Savings Plans are long-term savings plans offered by Friendly Societies, designed to help you build a financial nest egg for a child. You can make regular monthly payments to build up savings for the child over time, with the money paid out at the end of the term free from UK Income Tax, subject to the plan's rules.

Depending on the provider and plan, contributions may be invested in assets such as bonds, stocks and property. Some plans offer a guaranteed minimum payout at the end of the term, with the potential for additional bonuses depending on investment performance. The exact guarantees and potential returns vary between providers.

HMRC limits how much can be paid into tax-exempt savings plans for a child, with a current maximum of £270 per year (£25 per month) across qualifying plans for the same child.

Depending on the provider, they can be opened by the parent or legal guardian of the child, grandparents and even other friends and family. This can make them a popular choice for grandparents or friends looking to put money aside for a child's future.

NS&I Premium Bonds

Premium Bonds work differently to most savings accounts. Instead of earning interest, each £1 Bond is entered into a monthly prize draw, with tax-free prizes ranging from £25 up to £1 million.

• Money is held safely, as HM Treasury backs Premium Bonds
• There's no guaranteed return. Some Bond holders may not win a prize in a given month
• You can cash in Premium Bonds at any time without notice or penalty. 

Anyone over 16 can buy Premium Bonds for a child, but they will need to fill out an application form and nominate a ‘responsible person’. This responsible person is typically the child’s parent or legal guardian and will manage the Premium Bonds on behalf of the child.

Junior pension (SIPP)

A Junior Self-Invested Personal Pension (SIPP) is a long-term way to save and invest on a child’s behalf for their retirement. Contributions receive a 20% tax relief, giving an extra boost on anything paid in.

• Contributions can receive 20% basic-rate tax relief. For a child with no or low earnings, up to £2,880 can be contributed each tax year with tax relief, with £720 added by the government, giving the child £3,600 in their pension.
• The money is held in investments such as funds, shares and other assets, depending on the SIPP provider. Its value can go up or down over time.
• The pension normally cannot be accessed until the child reaches the normal minimum pension age. This is currently 55 and is due to rise to 57 from 6 April 2028, although pension access rules may change in future.
• If a child has no or low earnings, up to £2,880 can usually be paid into their pension each tax year and receive tax relief. If the child has relevant UK earnings, they can generally contribute up to 100% of their earnings, or the annual pension allowance (currently £60,000 for most people), whichever is lower, and receive tax relief. This may be affected by any other pension contributions made during the tax year.

Child Trust Fund vs Junior ISA

If your child was born within the Child Trust Fund eligibility window (1 September 2002 to 2 January 2011), you may find yourself wondering whether to keep their existing Child Trust Fund or transfer it into a Junior ISA. 

A child can only hold one or the other at any given time, so a Child Trust Fund needs to be transferred into a Junior ISA if you'd like to make the switch; it isn't possible to hold both.

Both accounts share the same core features. They're tax-free, the money belongs to the child, and it becomes accessible to them from age 18.

You can read more in our comparison of Child Trust Funds and Junior ISAs.

What are the tax implications of saving for a child?

Children have their own tax allowances, in the same way adults do, so many children's savings and investments can grow without any tax being due, up to their personal allowance.

Savings held in a Junior ISA, Child Trust Fund or other tax-free children's savings product can grow without the need to track your child's tax allowance. You'll still need to stay within the product's own limits, such as the annual ISA allowance.

Important: Tax may be due on savings or investments held outside tax-free products, depending on the amount and type of income generated. Gifts made to a child may also have Inheritance Tax implications. If you're unsure about the tax implications of saving or investing for a child, consider speaking to a qualified financial adviser at unbiased.co.uk. Advice may come with a fee, always ask about costs before receiving any financial advice.

Choosing a way to save for your child

There’s no one correct answer; the right option will depend on your family’s circumstances and what you want to achieve financially for your child. A few questions may help narrow things down:

• How long do you have before your child might need the money?
• Are you comfortable with the value of an investment going up or down?
• Do you need the money to be potentially accessible?
• Do you want to keep some control over the money?

Having an emergency savings fund separate from any savings you are growing for your child can help potentially reduce the need to dip into these funds. 

Got a question? If you'd like to speak to our friendly team, you can call us on 0161 214 4650.

Please note we can only provide factual information. If you're unsure whether a product is right for you, it's worth speaking to an Independent Financial Adviser (IFA).  You can find a local adviser at unbiased.co.uk. Keep in mind that financial advice may come with a fee, so be sure to ask about costs before receiving advice.

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