Six ways to start saving for your child’s future

Saving for your child is one of those well-meaning resolutions that often gets pushed to the bottom of the priority list. But setting up an investment account and making regular contributions doesn’t take much effort, and by the time they turn 18, your child could have a sizeable financial head start.

A lot of parents default to cash when saving for their children. The latest HMRC data shows 42% of all Junior ISA contributions go into cash*. However, investing has historically delivered better returns over the long term. Over the past decade, £1,000 invested in a global tracker fund would now be worth £3,284, while the same amount in a typical cash ISA would have grown to just £1,141.**

Whether you’re racing to meet this tax year’s deadline or planning ahead for the new one, here are six simple ways to get started with investing for your child’s future.

1. Choose the right account

With so many options available, it can be tricky knowing where to start. A Junior ISA is a great choice for many parents. You can save up to £9,000 a year, and the money is locked away in your child’s name until they turn 18.

But if you want more flexibility, you could use your own ISA instead. This means using up part of your £20,000 annual allowance, but it also allows you to access the money if needed. However, if you think you might be tempted to dip into it, keeping the funds locked up in a Junior ISA could be a better option.

Learn more about our Junior ISA

For long-term saving, there’s also the Junior SIPP. You can contribute up to £2,880 a year, with tax relief boosting this to £3,600. The downside? Your child won’t be able to access the money until retirement. But the potential returns are significant: a single £2,880 contribution at birth could grow to £46,500 by age 57, assuming 5% annual growth.

Learn more about our Junior SIPP

2. Track down forgotten accounts

If you’ve already started saving for your child but lost track of where the money is, now is a good time to check. If it’s in cash, it’s likely earning little interest. Consider consolidating everything in one place to make managing it easier.

Parents of older children should also check for a forgotten Child Trust Fund. The government set these up with initial contributions, but many parents have lost track of them. You can use the government’s online tracing service to find out if your child has a Child Trust Fund. Once located, you could transfer it to a Junior ISA, which may offer lower fees and more investment choices.

3. Work out what you can afford

Not everyone can afford to max out a Junior ISA’s generous £9,000 annual limit, but even small amounts can add up. Even £25 a month from birth could grow to almost £9,000 by age 18, while £50 a month from age five could reach £15,000. Starting later? £100 a month from age 10 could still build a £12,000 pot by age 18. The average investment Junior ISA contribution is £1,800 per year,* so start with whatever you can afford and increase it as your finances allow.

At the other end of the spectrum, someone saving the full Junior ISA allowance of £9,000 a year from birth, with 5% annual investment growth, could build a pot worth £266,000 by age 18. Adding the maximum Junior SIPP contributions would push this to £372,000, but this isn’t realistic for most parents.

4. Automate your savings

Setting up automated contributions is the easiest way to stay on track. Just like Direct Debits for bills, regular investing removes the need to remember to top up the account each month.

Most investment platforms let you set up a Direct Debit from your bank into your investment account, with regular investments starting from as little as £25 per month. If you need to skip a month, you can pause it, but automating your savings helps ensure you stay consistent. Another bonus? Regular investing helps smooth out market volatility, reducing the risk of investing all your money when prices are high. Learn more about regular investing.

5. Get family involved

While only a parent or guardian can open a Junior ISA if the child is under 16, anyone can contribute once it's set up. Grandparents, relatives and friends can all chip in, either with a lump sum for birthdays and Christmas, for example, or by setting up a regular Direct Debit to pay money in each month. Just remember that total contributions can’t exceed £9,000 per child per tax year.

6. Pick your investments

The final step is deciding where to invest the money. You can pick individual stocks or choose a fund to do the work for you. The big decision is whether to go for an active fund, where a manager picks stocks in an attempt to beat the market, or a passive fund, which simply tracks an index. Passive funds tend to be cheaper, while active funds have the potential for higher returns, but there’s no guarantee.

You don’t have to stick to one approach, you could combine a low-cost UK stock market tracker with an actively managed fund for a specialist area. Another simple option is an all-in-one multi-asset fund, which spreads investments across multiple assets, reducing the need to pick individual stocks.

When investing for children, time is on your side. If they’re young, you have up to 18 years to ride out market ups and downs, so you might want to take more risk. If they’re closer to 18, you might want to dial down the risk or move into cash. Some parents prefer a cautious approach regardless of timeframe. Ultimately, it’s about your comfort with risk.

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*According to HMRC ISA figures.

**Investment figures based on Fidelity Index World, excluding platform charges. Cash figures based on Bank of England average cash ISA rates.