Junior Savings Accounts that Significantly Boost a Child’s Inheritance

| 7 Nov 2012 | 1 Comment

There are numerous ways to save for one’s own future, however once you have children to consider it is vital that you provide for them financially in order to give them the best possible start in life. This can be achieved through a range of options, including the formation of a child specific savings account. Establishing the right type of savings account for your child can be tricky, however in light of the global economic crisis it is no surprise that parents are taking great measures to ensure that their children are able to secure a financially stable future.

 No time like the present to save for your child’s future

Junior Savings AccountsAs living expenses rise, the idea of establishing a long-term savings plan for your child can be an overwhelming one. However as the global economy remains unstable in many countries across the globe, the cost of having children continues to rise. To add further pressure to parents’ concerns, a greater emphasis is being placed on the significance of a high-quality education in facilitating employment success.

These elements combined are leading a higher percentage of parents to consider the importance of saving for their child’s future, in order to give them better opportunities in life. Such financial security will also give parents the opportunity to be more flexible when planning for their child’s future – a luxury that could help them in avoiding the burden of student debts and other financial troubles.

Prioritizing financial obligations in a tough economic environment is becoming an increasingly challenging and overwhelming process. Concerns that the money will not grow – due to interest rates falling and tax rates rising, are leading many parents to believe that there is little purpose in establishing any type of savings plan.

Many agree that leaving money in a long-term savings account can have detrimental consequences on the funds, particularly during an unreliable and stagnant financial climate. In addition, choosing the wrong savings medium for your child’s future could result in the loss of thousands in taxes and missed financial aid.

Nevertheless, research suggests that the correct implementation of a child’s savings account will provide lifelong benefits for children, including greater education attainment in school, college or university. Children can further use their savings for post-education purposes, including home-ownership or business initiatives.

Selecting an account for a better future

Bank accounts come in a number of variations and oftentimes the specific country that they are established in can influence the type of account obtained. For example there are many countries that offer tax-free savings accounts for people under the age of 18, including the UK, Dubai, India and the USA.

One of the UK’s most exclusive junior savings accounts is a Child SIPP (Self Invested Personal Pension), which enables parents to place their funds into a wide range of investments, including UK and international shares, bonds and funds. Contributions are eligible for tax relief and parents can transfer up to £3,600 per year.

SIPPs also offer a high level of flexibility, giving parents the opportunity to endow their children with a generous pension plan upon their child’s retirement. SIPPs are easy to manage and set up, with no capital gains tax or income tax charged on any investments made.

Child’s InheritanceExperts suggest that over a 50 year period, many parents could see their children’s SIPP being worth close to £1.2million upon retirement. The more money that is placed into the account, the more effective it will be in the long-run. Accounts are exclusive to those of a higher net worth status as the costs of setting up a Child SIPP include a subscription fee, banking charges, a trading fee, transfer fees and a probation fee.

Another profitable junior savings accounts offered in the UK is the Junior ISA. Like the Child SIPP, they allow a maximum investment of £3,600 per year, which can be invested in either cash or stocks and shares (provided the child is 16 years of age or over). Also known as a JISA, this account offers a high interest rate (in some cases, up to a significant 3.5%), which is paid out on a tax-free basis. The availability of high level, tax-free interest rates mean that children are in an advantageous position to easily augment their savings.

To contrast with the Child SIPP, children have access to their funds upon reaching the age of 18, giving them a head start in life and the opportunity to pay their way through university, get on the property ladder and even establish their own business ventures. Set up fees are minimal though these are determined by the amount of money placed into the JISA. As an additional benefit to the package, children are also offered free personal accident cover.

Saving in the USA

The USA places equal emphasis on the importance of saving for your child’s future, and offers a number of tax-free options to parents, including a Brokerage account, a 529 College Savings Account and a Child’s Savings Account.

Brokerage accounts provide maximum flexibility and the potential for high returns over a long period. They involve investing after-tax income, and provide the potential for high returns on investment in the long run. Money can be transferred into the account on a monthly basis while the fees implemented are minimal.

The 529 College Savings Account is a tax-free, direct deposit account offered by many companies across America. 529s are endorsed by the IRS for the specific purpose of paying for tuition or other educational expenses. They allow parents to place tax-free investments into their children’s accounts, which can be withdrawn to pay for necessary expenses.

Nevertheless 529s pose stringent regulatory measures including heavy penalties charged on the withdrawal of non-qualified expenses. In addition, investment options are fairly inflexible as they can only be changed once per year.

Children’s bank accounts generate interest globally

Countries internationally are placing an emphasis on the importance of teaching children how to save for their own futures. Dubai Islamic Bank (DIB) recently unveiled its new account developed specifically for children. Available to all children in the UAE, the account provides people of a young age with the opportunity to build their savings from early on in life and develop an understanding of the importance of financial responsibility. The purpose of such an account is to create banking awareness in children whilst enabling them to save their money for the future.

The future of children’s bank accounts

Despite ongoing expenses throughout an adult’s life, the formation of a child’s savings account gives parents the peace of mind that their children will be supported in their future years. The process of opening a junior savings account undoubtedly requires some planning and preparation, and although setting up a savings strategy is not mandatory, it is a necessary step in providing your children with a financially comfortable future.

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Category: Wealth Management

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  1. Bart Coppens says:

    Very Interesting I like this Article!

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