Rainy day savings

Now I'm a bit of a planner, so much so in fact that I pretty much planned most of our wedding (leaving the frilly bits to the wife-to-be), and my wife, she is just a doer.  We make a perfect pair as ultimately things generally get done, whether its because its been planned well in advance or we've just managed to sort it out on the fly.  However, when it comes to money, we're generally the other way around - Jane squirrels little bits away, and I put big bits away when I have it.

One of the things I've not really had to think of before is planning someone else's finances.  How do you go about giving your children the best start in life - or by the time inflation kicks in over the next 20 years, giving them at least a small foot up?  As the tiredness of the first couple of months of fatherhood subsided, I started to explore options for starting a nest egg for when India contemplated flying the nest.  Now not to say that I would expect her to actually move out on her 18th birthday, but having some money aside for things such as putting a deposit down on a first house/flat, university fees, purchasing a clapped out Ford Fiesta, or even to pack a backpack and jet off round the world as so many teenagers do these days.

Feeling proud that I'd had the foresight to plan eighteen years in advance, partly to avoid becoming bankrupt by the age of fifty, I embarked on some research for the best savings accounts for India. What became instantly obvious was that whilst there were hundreds of products out there, they were all pretty much the same!  The only clear differences were the three varying options of account type; Easy Access, Fixed Rate or Regular Savers.

What became quickly apparent was the lack of savings stability, each of the aforementioned account options only really promised a decent rate (varying between 3-6%) for the first year, and then decreases to a lower rate in year two, meaning you probably need to top load the account to take advantage of the introductory rate (which is clever on their part, as most parents are fairly broke in their first year due to mat/paternity leave or coming to terms with the cost of feed/nappies etc).   I wanted something that was a bit more adventurous when it came to my investment, as that is essentially what it all was, investment in my daughter's future.

First thing was first, I at least needed to get an account set up for her, and I opted for the Halifax Kids Regular Saver which has a fixed 6% AER for the first 12 months.  With monthly deposits between £10-£120 it had everything I was looking for whilst my wife and I dealt with our new-found baby induced financial hardship.  The most important thing was that I had got the savings ball rolling, albeit with a small starting amount, but the way I figured, deposits would go up as my salary did over time. 

Once signed on the dotted line (it's worth noting that you can only open this account in branch), the spotty uni-grad assistant informed me of the onward options once the annual 6% had come to it's natural end - standard procedure is that this account gets switched into a Halifax Young Saver account which gives you a decent enough 3% AER (on anything under £20k) or another option was to look at a Junior ISA.  This product comes in two variations, a cash version and a stocks and shares option.  

On further research since that conversation it is clear to see why this might be a good option, especially as something like a 0.5% interest for the best part of 20 years is going to be akin to stashing a load of fivers in a shoe box and sticking it under the bed.  On viewing the benefits of a stocks and shares Junior ISA, it was made easily understandable that your savings are essentially spread across the FTSE 100 and a number of minerals (such as gold and copper), thus lowering the risk and increasing the possible gains.  Chelsea Financial Services, one of the leading sources of information on investments endorses this as a safe option, given that a realistic annual return of at least 5% over the course of an 18 year period far outweighs what you would get from a traditional account.  Unlike Child Trust Funds (which ran their course in January 2011) where the government also put money in, any form of Junior ISA enables the parent/grandparent to save or invest £3,720 per year.  This means tax free interest or earnings when any money is withdrawn in later life.

It's a bit of a mind boggling market out there, and there are some pitfalls to watch out for, such as with the fixed rate accounts where you're unable to withdraw during the saving period and are subject to a periodic interest penalty - so if you need to save for stair gates, save elsewhere.  Nevertheless, if you're serious about setting up your little ones future, and you've got even a small amount to put away each month then it's well worth exploring your options.  When opening the account, make sure you go in armed with birth certificate, proof of address, hospital release forms and a copy of your family tree to avoid being turned away until you next have a day off!  

Things have changed since the grandparents' favourite option of premium bonds (which generally offer very limited returns) and it's wise to shop around for the best deal.  Part of me is quite excited that I'm able to provide a platform for my daughters financial future, and I can't wait to try and explain to India on her 18th birthday how she grew her savings through stock and shares, only for her to then go and spend it on the latest iGadget - but that's what makes parenting fun, right?!