Investing for children

With your children facing increasing costs on life's milestones, the earlier you can start saving for them, the better. A regular savings plan or lump sum investment could help to pay for school or university, a wedding, or a deposit on a first home.

Reasons to start investing now

• anyone starting university this year could pay £34,000 in fees for a three-year course ¹
• the average cost of private education is £2,707 a term for day only and more for boarding school ²
• the average cost of  a wedding is £11,000 ³

OEICS, unit and investment trusts

The easiest way to invest in the stockmarket is through a unit or investment trust, or an open ended investment company (OEIC). Your child can't hold these types of investments until they reach the age of 18, but an adult can open one and add the child's initials to the account holder name (called 'designation'). This allows you to treat the income as the child's and transfer the assets to the child at 18.

Key benefits:

• stockmarket funds are ideal for longer-term savings, making them less risky than perceived
• choose from over 1100 funds from more than 60 providers 
• look out for low-cost pooled investments such as index tracker funds
• there are flexible ways to save using both monthly and lump sum payments - some parents choose to save their child benefit this way
  
  
• Find out more about our OEICS, unit and investment trusts

Start with an ISA

ISAs are a flexible, tax-efficient way to save for your child's future. ISAs aren't available for children, but you could use your allowance to save for them and any income or capital gains you receive will be tax-free. A child can open a cash ISA once they are aged 16 to help boost their financial future.

• Find out more about ISAs

Invest for your child’s retirement

Setting up pensions for your children or grandchildren may sound extreme, but it could be an excellent way to take advantage of the power of compound growth. Knowing they already have a pension could save them - and you - a lot of worry.

Another good reason for children to have a pension is that they receive tax relief at the basic rate⁴, even though they probably do not pay income tax. This means that if you paid £240 a month into a Fidelity Personal Pension, it would be made up to £300 with tax relief.

Let's say you keep these payments up until the child is ten and invest them in a fund that grows at a rate of 6% year and has an annual charge of 1.5%. This could produce a pension "pot" of £510,012 by their 65th birthday.

• Find out more about our SIPP options
  

Please note that the value of investments can go down as well as up and you may not get back the amount you invested. The value of tax savings and eligibility to invest in an ISA or SIPP will depend on individual circumstances and all tax rules may change in the future.

^{1  NatWest Student Money Matters Survey 2007
2  Independent Schools' Council information service (ISCis), 2007
3  weddingguide.co.uk
4  Assuming a basic rate of 20% as from April 2008}