Things to consider
Saving on behalf of children will often be the largest single item of expenditure for parents. Start now to benefit from compound interest.
Do your research
Saving on behalf of children will often be the largest single item of expenditure
for parents. Consider the costs shown in this table. These have to be met from your
after-tax income and, even worse, historically all of these items have increased
at much more than the rate of inflation.
| Purpose |
Typical Cost |
Potential Investments |
| Primary Education |
Up to £40,000 per child |
- Selected Zeros
- Bank Accounts
- National Savings
- Guaranteed Bonds
|
| Secondary Education |
Up to £120,000 per child |
- Temporary Annuities
- Investment Trusts
- Unit Trusts
- Selected Zeros
- Corporate Bonds
|
| University Education |
Up to £20,000 per child |
- Temporary Annuities
- Investment Trusts
- Unit Trusts
- Selected Zeros
- Corporate Bonds
|
| Deposit for Property Purchase |
Up to £20,000 per child |
- Guaranteed Bonds
- Deposit Accounts
|
| Pension |
Up to £50,000 per child |
|
If you want to make provision for these costs the first rule is to start as soon
as possible, so as to benefit from the power of compound interest. Secondly, employ
an investment policy that reflects your objectives:
-
How far off is the liability?
If less than five years then you
should be looking at investments that provide a predictable return, e.g. guaranteed
bonds, lower risk zeros.
-
How fixed are the plans?
If they are likely to change you will
need a policy that allows flexibility.
-
How can you maximise the tax efficiency?
Parents liable to top
rate tax and potentially liable to IHT have a powerful incentive to make use of
the child's tax free allowances. Depending on the amount available and the source
of the funds, you might wish to consider putting the investment in trust.
-
Lump sum or regular savings.
This will affect the range of potential
investments available.
Important Information
The value of the investment and the income accumulated can go down as well as up and may fall below the amount invested.
The favourable tax treatment of CTF may not continue in the future.
Want to know more?
For more information visit the official Child Trust Fund website