How to turn £25 a week into £50k for your child by the time they’re 18 – plus the top accounts you can open NOW

IT’S every parent’s dream to give their child a nest egg so they never need to worry about money. But what if we told you that you could build up a £1million cash pot for your child with just £25 a week? We ask top money experts how YOU can get started and the best account to open now. Saving just £25 a week could help you make your child a millionaire Credit: Alamy Saving little and often can help your cash to grow over time Credit: Alamy The average graduate leaves university with around £63,000 in debt, while a typical first-time buyer needs a deposit of about £23,000 to get on the property ladder. But although costs are rising, graduate salaries are not keeping pace, which means more young people are reliant on the Bank of Mum and Dad. While it may feel impossible to save such big sums of money, starting early and stashing a small amount each week can set up your loved one for the future. Invest well and you could even make them a millionaire. Ed Monk, from the investment firm Fidelity International, says: “Getting started early can make a real difference over the long term. “Even relatively small regular contributions have more time to grow, and building the habit early can give children a valuable financial head start.” But is it best to put your cash in a savings account, Isa or even a pension? Here top money experts reveal the account YOU need to open and how you can get started. Junior Isa A Junior Isa can be a great way to invest cash in the stock market Credit: Alamy A Junior Isa is one of the easiest ways to save for your child’s future. You can open one of these tax-free savings or investment accounts when your child is born and pay in up to £9,000 a year without paying any tax on your returns. Children take control of the account at age 16 and can access the money from age 18 – so it’s important to speak to them about what to do with the pot before then. You can open a junior cash Isa, which is like a savings account and pays a set interest rate. But you could get an even better return with a stocks & shares Isa, which lets you invest the money in the stock market. Camilla Esmund, head of investor campaigns at Interactive Investor, said: “There are many squeezes on the household finances, and parents must juggle other outgoings with any savings they make for their children. “The good news is that even small amounts, invested regularly can make a big impact over time.” Investing £10 a week from when your child is born until they are 18 would get them a pot worth £20,947 by their 18th birthday, according to investment firm Interactive Investor. What are the risks of investing? BEFORE you start investing, you need to understand the risks. Investments can go up as well as down, and the stock can fall dramatically, so returns are not guaranteed. You must be prepared to lose it all – so only invest money you can afford to sacrifice. You need to be willing to invest cash for at least five years to mitigate any dips and allow your money to recover. If you can’t afford to lock up your money for this long, investing may not be right for you. It’s usually better to drip feed money into your investments instead of putting down a big chunk of money in one go. It’s also best to choose a diverse fund, with a mixture of stocks, shares and commodities like gold, as this can reduce risk. Before you start investing, experts say you should have a minimum of six months’ of wages in a savings account before you start and only invest money you can afford to lose. You would have invested a total of £9,360 and earned £11,587. This assumes annual growth of 7%. Those able to set aside more could build an even bigger pot. A weekly investment of £25 could grow to a whopping £52,371 by the time a child turns 18. What the young person chooses to do next is where the magic happens. Some may choose to withdraw their cash to pay for university, a first car or a house deposit. But if they are able to resist temptation and leave their money invested then by their 40th birthday it could grow to £342,577 – even if they never invest another penny. If they leave the pot untouched until their 55th birthday they will have more than £1million. This assumes that they never paid in another penny between the ages of 18 and 55. Camilla says: “As the saying goes: mighty oaks from little acorns grow. “If you use a Junior Isa from the birth of your child, the pot has years to grow, all within an account that will shield any gains from tax.” Most high street banks offer Junior Isas and you can open an account with as little as £25. Children’s Pension If your child won’t need the cash soon then a children’s pension could be for you Credit: PA If you really want to plan ahead then you could even start a pension for your child. One way to do this is to open a Junior Self-Invested Personal Pension (SIPP). SIPPs are DIY or personal pensions that allow you to choose your own investments, or you can get your provider to pick them for you. As a parent or guardian you can set up a Junior SIPP for your child as soon as they’re born. You can open a Junior SIPP with an investment platform such as AJ Bell or Hargreaves Lansdown with as little as £25. You can put up to £2,880 a year into these accounts and your contributions get topped up by the government through tax relief, which can boost the pot. If you paid in the full £2,880 a year, then your contribution would be topped up to £3,600 a year. If you were able to put £150 a month into a child’s pension then it would be topped up to £187.50 by the government. If you did this until the child was 18 the pot could be worth more than £90,800, assuming annual growth of 8%. You would have contributed a total of £32,500 and received £8,100 in tax relief. My 12 year old is on track to retire with £365k As a single mum, Kara Gammell is always thinking about how she can give her daughter, Audrey, the best start in life. Kara has set Audrey up with a children’s pension – and at just 12-years-old, she’s already on track to retire with £365k. The savvy mum set up a child’s pension, called a Junior Self-Invested Personal Pension (SIPP), for Audrey in October last year. SIPPs are DIY or personal pensions that allow you to choose your own investments, or you can get your provider to pick them for you. A parent or guardian can set up a Junior SIPP for their child as soon as they’re born. Audrey is one of around 45,000 kids in the UK who now have their own pension before they’ve even started work. Kara, 46, who is a personal finance expert at MoneySuperMarket, says she hardly notices the £50 a month she saves into it coming out of her account. “It’s the same price that I’d pay for a Pizza Express or takeaway for the two of us,” she says. But her small sacrifice, which totals £600 a year, means her daughter will retire with up to a huge £365,400 in her pension pot. “I thought it was something I could do now that might take the pressure off her when she’s older,” Kara said. “When she’s older and supporting ageing parents like me, or has her own kids, or wants to take a career break – whatever it is – it will hopefully be a little boost to help with that.” If the young person then continues investing £150 a month into the account, which also gets topped up to £187.50, they would have a pot worth £1million by the time they were 45 years old. But if they decided not to pay in any money from the age of 18 onwards then their pot would be worth £241,688 by the time they were 45, assuming their investment grew by 5% a year. Or if they waited until they were 65 then the pot would be worth £641,270, making the same assumptions. Doing this means your child will never have to worry about whether they’re saving enough for a comfortable retirement. Ed says: “Pensions can be particularly powerful because they combine long-term investment growth with tax relief on contributions. “The money is locked away until later life and that long time horizon means that contributions made in childhood have decades to compound and grow, potentially turning modest early savings into a much more meaningful retirement pot.” But remember, when saving into a pension for your child they can’t access the cash until they are at least 68 years old. So if you think your child could use the cash sooner to buy a first car, help with the cost of university or for a housing deposit then a pension might not be the best way to save for them. You should also check if the account has high fees, which can eat into the size of your pot. Be aware that high fees eat into the size of your pot. Someone who invested £50 a month for ten years (at the highest 8 per cent return rate) would have £8,950 if their fees were just 0.25 per cent. But if fees were 1.5 per cent over the same period, they’d have £8,382 – that’s £568 less. Cash savings Keeping your money in cash could limit the return you could get Credit: Alamy Those who are nervous about the idea of investing on behalf of their children might prefer the idea of cash in the bank. But cash savings typically grow at a slower rate than money invested in the stock market, so you’re unlikely to be able to use it to make your child a millionaire. It may feel less risky to keep your money in cash but doing this risks it being eaten away by inflation. Inflation is the rate at which the price of goods and services rises over time. If your interest rate is below inflation then it means your spending power gets smaller each year. Currently the top Cash Junior Isa rate is 3.85% from Leek Building Society. A parent who saved £25 a week into this account would have built a pot worth £33,731 by the time their child turns 18. This assumes the interest rate stays the same but, in reality, rates are usually only fixed for a set period (or aren’t fixed at all), so you will need to shop around every year or so to find the best deal. If the child left that £33,731 to keep growing at the same rate, without adding any more to the account, it would still only be worth £385,000 by the time they are 80 years old. Use a comparison website such as MoneyfactsCompare to look at the different rates banks and building societies are offering. Premium Bonds? Premium Bonds give your child the chance to become a millionaire but the odds of winning are slim Credit: Alamy Premium Bonds are a type of savings account but instead of paying regular interest, each bond enters you into a monthly tax-free draw to win prizes ranging from £25 to £1million. Unlike other lotteries, Premium Bonds are open to anyone who lives in the UK, and parents can buy them for their children. You can put a total of £50,000 in the accounts. Premium Bonds offer the promise of becoming a millionaire overnight, but the odds your child wins the jackpot are minuscule. The chances of winning any prize at all are 23,000 to one. Someone with £25 in Premium Bonds has just a one in a 2.7 billion chance of becoming a millionaire. It’s important to remember that, while you will never lose money with Premium Bonds, there are no guarantees you will win anything. It’s estimated that 63% of bondholders have never won a prize. Laura Suter, director of personal finance at AJ Bell, says: “Premium Bonds are often given as a gift from parents or grandparents and, while there is no harm in that, there may be better ways to put that money to work. “Unless you are saving a large amount, you’re unlikely to see that dream of becoming a millionaire ever become a reality – and you may get no return whatsoever.” You can buy Premium Bonds online through the NS&I website or by calling 08085 007 007.