If you have a lump sum of around £70,000 and you want to provide for your children or grandchildren’s future, there are a number of options that you might want to consider.
Junior Cash or Stocks and Shares ISAs
You could open a Junior ISA for a child under 18, putting regular amounts of money into the account.
The account must be opened by the child’s parents, but the funds can only be accessed by the child when they turn 18. ISAs are a good idea because they don’t attract tax on the interest they earn.
You can transfer the money to a different ISA if you wish in order to find a better interest rate.
Through Stocks and Shares Junior ISAs you can buy shares, bonds, and other investments on behalf of a child. As the money could be invested until they are 18 or more, they could benefit from a fairly significant amount of compound interest.
Many parents are afraid to invest in the stock market, but small monthly amounts over the long term will help mitigate any swings in stock value.
The annual limit for a junior ISA is £4,128 for the 2017-18 tax year.
NS&I children’s bonds
These bonds are sold in batches, which run for five years each with a fixed interest rate.
The interest is added at the end of each year. At the end of the five year term, the bonds can roll over for another five year term. The child owns the bonds, but the parent, grandparent or guardian owns them until the child reaches the age of 16.
Currently, the bonds pay out a reasonable 2%, but sadly that is still not greater than inflation.
All the interest is tax-free and you can invest up to £3,000 per batch or issue.
Capital schemes for university tuition fees
Capital schemes are based on a single payment to a recognised Guaranteed Fund. The return on this investment is guaranteed and has a protection component should the parents or children die or private schools be abolished.
An early investment, such as on the birth of a child, is advised and should amount to around 25 per cent of school fees payable. This includes prep and public schools and less is required for university.
Combined schemes for school and university tuition fees
These schemes combine capital and income components and are suitable for investors who do not have sufficient capital to cover the whole cost of education and who wish to supplement their investment through large irregular payments over a short term.
These are just a few ideas on how you could use £70,000 to plan for your children’s future.
Always remember that investments can go down as well as up and that previous performance is not a guarantee of how your investments will fare in the future.Last updated: September 21st, 2017