Investing for children: What are your options? 

4 min Read Published: 11 Apr 2024

Investing for children: What are your options? 

Why should you invest for a child?

Parents, grandparents and other family members are often keen to provide a sum of money to their children to give them a start in life when they reach a certain age. By saving or investing over a period of time, a family can build up a sizeable lump sum which can then be used by the child to pay for university fees, as a deposit for a property or to start their own business.

Often when saving for a child's future a cash account is opened with a bank or building society and money slowly grows over time. However, there are a range of other account options available that could result in a more substantial fund when it is eventually accessed.

What accounts should you invest in for your children?

What account you use to build your child's fund will depend on the timescale before the fund needs to be accessed and the risk you are prepared to take in getting a better return on your investment. Typically investing for a child starts right from when they are born and, as most accounts are not touched until age 18 or later, it makes investing in stocks and shares a viable option to increase the growth of the fund.

What are the different saving and investing options for children?

Children's Savings accounts

Many of the banks and building societies offer savings accounts specifically for children, providing a preferential interest rate for the first 12 months or paid on balances up to a certain limit. Accounts will have to be opened by somebody with parental responsibility if the child is below a certain age, which differs between providers. Opening this type of savings account is simple and the funds can be accessed at any time.

Best children's savings accounts

Below we list the current top 5 children's savings accounts in the UK:

Saffron Building Society Halifax Coventry Building Society HSBC The Family Building Society
Account name Children's Regular Saver Kids Monthly Saver Young Saver MySavings Junior Saver 2
AER 5.80% 5.50% 5.25% 5.00% 4.50%
Minimum age to open 0 0 7 7 0
Maximum age to open 15 15 18 17 17
Minimum opening balance £5 £10 £1 £1 £3,000
How to manage the account Branch, Post Branch Branch, Telephone, Cash card, Post Branch, Telephone Branch, Post, Telephone
How to apply Branch, Post Branch, Online Branch, Post Branch Branch, Post
Financial Services Compensation Scheme Own Licence Shared Licence (Lloyds Bank) Shared Licence Shared Licence (First Direct) Shared Licence

Source: Updated 11/04/2024

Child Trust Funds

While Child Trust Funds (CTF) are no longer available, you can still contribute up to £9,000 a year into an existing CTF account. The money belongs to the child and they can only take it out when they have reached the age of 18 but can take control of the account when they’re 16. There is no tax to pay on any CTF income or any profit it makes.

Junior ISA (JISA)

A JISA is a long-term tax-free savings account for children and contributions can be made up to an annual limit of £9,000 (Tax year 2024/25).

Parents or guardians with parental responsibility can open a JISA and manage the account but the money belongs to the child. Once open, anybody can contribute to a JISA which means it is perfect for family and friends to gift money over time. The child can take control of the account when they reach the age of 16, but cannot withdraw the money until they reach the age of 18.

What are the different types of Junior ISA (JISA)?

  1. Cash Junior ISA - this acts like an ordinary savings account but where all returns are totally tax-free
  2. Stocks and shares Junior ISA - your cash is invested in stocks and shares, funds, ETFs or bonds. All capital growth and any dividends received will be totally tax-free and you will not pay tax on any capital growth or dividends you receive. For more information on stocks and shares JISAs read our comprehensive article 'Best Junior stocks and shares ISA'

Junior SIPPs

A Junior Self Invested Personal Pension (SIPP) is a type of pension designed for a child. While on the face of it starting a pension for a child may appear a bit premature, the long investment period and access to a pension fund at 55 could make it a wise long-term investment choice.

Up until the age of 18 a Junior SIPP is managed by a parent or legal guardian, who will make the investment decisions. As a Junior SIPP is a long-term investment, more investment risk can be taken in an attempt to improve investment growth.

Investment of up to £2,880 per year can be paid into a Junior SIPP, with tax relief of 20% added to any investment (totalling £3,600).

For more information on children's pensions, read our article 'What is a Junior SIPP - Children's pensions explained' and to help you find the best Junior SIPP for you, check out our article 'Best and Cheapest Junior SIPPs'.

NS&I Premium Bonds for children

Buying Premium Bonds as gifts for children has long been popular with parents and other family members. Holders of Premium Bonds are entered into a monthly prize draw, giving them the opportunity to win between £25 to £1 million, tax-free.

Unlike other savings accounts, Premium Bonds do not pay interest, which means their value will gradually decrease as inflation reduces spending power unless, of course, you win some prizes. Although Premium Bonds can be a good idea for small gifts of £25 or more, they are not viable long term if you are looking to build a worthwhile lump sum.

Anyone can buy Premium Bonds on behalf of a child, but must nominate a parent or guardian to look after the bonds until the child reaches the age of 16 and must also nominate to have any prize money reinvested in more Premium Bonds. The current prize pot means that premium bonds pay a notional interest rate of 4.65%, however, this is reducing to 4.40% from March 2024.

What are the different investing options for children?

Maximum investment Potential growth Capital at risk
Children's savings account Usually £100 per month in year 1 Higher interest rate in 1st year, then lower variable rate No
Cash Junior ISA £9,000 per tax year Variable interest rate No
Stock and shares Junior ISA £9,000 per tax year Higher growth potential Stock market investment with potential risk to capital
Junior SIPP £2,880 per year with 20% uplift from tax relief (totalling £3,600) Higher growth potential Stock market investment with potential risk to capital
NS&I Premium bonds Up to £50,000 No growth but monthly prizes up to £1million No