Head start for the Blair babes

As the Government launches its new £500 Baby Bond, Clare Francis considers the options for parents investing on behalf of children

As part of its commitment to create a nation of savers, the Government is proposing to give every new-born baby up to £500.

As part of its commitment to create a nation of savers, the Government is proposing to give every new-born baby up to £500.

The Baby Bond, details of which were released last Thursday, will be invested in a Child Trust Fund designed to give each child an endowment that will mature at either 18 or 21 (the exact age has not yet been decided). It is proposed that a further £100 will be added on the child's fifth, 11th and 16th birthdays.

Payments are targeted at families on lower incomes, but children of wealthier parents won't miss out: they will receive £250 at birth plus a further three payments of £50 each. Parents and grandparents will be able to contribute to the fund if they wish.

In order to encourage those on lower incomes to save on behalf of their children, the Government has also announced its intention to launch a Saving Gateway, whereby it will match the contributions made by parents.

Both schemes, which are currently in the consultation stage, reflect a growing need for people to take responsibility for their own future. While it is crucial to save for retirement, it is also becoming harder for young adults to cope financially as the cost of living escalates. Consequently, an increasing number of parents are being forced to save for their children's future, to help meet the cost of higher education or to ease the financial struggle young people face when they leave home.

Those parents who begin saving from the moment their child is born have greater flexibility when deciding where to invest. There are various options available, particularly if you are planning to keep the money invested until your child, or grandchild, is at least 18. This sort of time scale is perfect for equity investments such as unit and investment trusts and open-ended investment companies (Oeics).

Ian Howe at independent financial adviser (IFA) Towry Law stresses the advantages of getting off to an early start. "There is a fantastic array of choice," he says, "and you can be as speculative or cautious as you want."

Traditionally, National Savings products have been used as savings vehicles for children. Returns are tax free but in recent years rates have dropped considerably. The National Savings Children's Bonus Bond is currently paying 4.45 per cent interest. The maximum you can invest is £1,000, and this sum cannot be accessed for five years.

Friendly Society baby bonds, such as those from Tunbridge Wells Equitable, have also been popular investment vehicles. But despite the fact that they are tax free, they are quite inflexible and charges are relatively high. Your money must be invested for a minimum of 10 years and you cannot pay in more than £25 a month.

Michael Owen, director of IFA Plan Invest, believes managed funds are a better option as returns tend to be higher. Some funds, such as the Witan Jump scheme or Invesco's Rupert Bear fund, are designed especially for children. However, while Mr Owen likes the Witan fund, which is cost effective and has a good track record, he suggests such funds may not be the best option.

Rather than opt for a fund specifically for children, Mr Owen advises parents to choose a quality fund with low charges. Donna Bradshaw, director at IFA Fiona Price & Partners, agrees.

"Don't go for gimmicks ­ go for performance," she says. "A tracker could be ideal. Charges are low and over time [these funds] are likely to perform as well, if not better than, managed funds. Alternatively, take a punt and go for higher risk by investing in something like a biotech fund. Another option would be an ethical fund, as children are likely to be interested in this and it's a good way of involving them and educating them about equities as they get older."

Parents or grandparents can set up the fund in their own name but designate it to the child, who can access the money at the age of 18 (or 14, if they invest with M&G). However, Mr Howe points out that you may not want your child to be able to access the money at 18. If you want to keep control of it, you can put it in a bespoke trust, enabling you to stipulate when you want the money to be made available and how much you want your child to have. But the downside is that you need to invest a significant sum ­ around £100,000 ­ as these trusts are expensive to set up and to run.

Another alternative is to put your children's savings in your name. "A tip for parents is to maximise their individual savings account (ISA) allowance each year and then choose how much they want to give their children and when they want to give it to them," says Ms Bradshaw.

You could also consider setting up a stakeholder pension for your child. This is a very tax-efficient way of saving and is likely to build up a significant amount of capital. However, be aware that it cannot be accessed until your child is 50.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
PROMOTED VIDEO
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    IT Systems Business Analyst - Watford - £28k + bonus + benefits

    £24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultants

    £20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

    Day In a Page

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

    A crime that reveals London's dark heart

    How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
    Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

    Lost in translation: Western monikers

    Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
    Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

    Handy hacks that make life easier

    New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
    KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

    KidZania: It's a small world

    The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
    Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

    'Renée Zellweger's real crime was to age'

    The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
    From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

    Disney plans live-action remakes of animated classics

    From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
    Thousands of teenagers to visit battlefields of the First World War in new Government scheme

    Pupils to visit First World War battlefields

    A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
    The 10 best smartphone accessories

    Make the most of your mobile: 10 best smartphone accessories

    Try these add-ons for everything from secret charging to making sure you never lose your keys again
    Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

    Liverpool v Real Madrid

    Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
    West Indies tour of India: Hurricane set to sweep Windies into the shadows

    Hurricane set to sweep Windies into the shadows

    Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
    Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

    A new American serial killer?

    Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
    Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

    Sting to trap paedophiles may not carry weight in UK courts

    Computer image of ‘Sweetie’ represented entrapment, experts say
    Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

    Return to Fukushima – a land they will never call home again

    Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
    Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

    Wildlife Photographer of the Year

    Intimate image of resting lions claims top prize
    Online petitions: Sign here to change the world

    Want to change the world? Just sign here

    The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?