Start early to give your newborn baby the best financial start….
There is loads to think about when you’ve just had a baby but one thing you might not want to forget is to start putting money away for their future. There’s a simple reason why: the sooner you start, the more your new baby will potentially have when they are older. Of course a newborn is expensive and there may not be lots of spare cash around but, if you can afford it, even small amounts saved for a long time can make a big difference.
For example, if you saved £10 a week from when the baby was born and the value grew by 5% per year, then at 18 they would have a lump sum of £15,000! But the amazing thing is that if you waited until they were 5 to start saving, you would need to put aside £16 a week to get to the same lump sum, or £30 a week if you waited until they were 10.
It is not just that you have paid in for more months that explains this, it is also that the money you put aside earlier has longer to benefit from the growth in its value over time.
Tax efficient ways to save
When saving for your new baby, you could decide to open a savings account in their name at a bank. However, the government has created a type of account that is designed specifically to help save money for your baby’s future: the Junior ISA.
Unlike a regular savings account, the Junior ISA is tax-free in that any interest or growth in value is free of income or capital gains tax. You can choose whether to save in cash, stocks & shares or a mixture of both and once opened by the parent, anyone is able to contribute such as a grandparent or a friend. Money is locked up until the child is 18 so that you know the money is going to the child and you won’t be tempted to use it yourself!
Decide on risk
When putting money away for your baby for the longer term, you have a choice as to whether to use a savings account, where your returns are dependent on the interest rate, or a stocks & shares account, where returns depend on how well the investments do. When investing, there is of course a risk that you could end up with less than you put in but evidence suggests that, over the long term, stocks & shares tend to outperform cash as the returns can compensate for the ups and downs.
For example: the MSCI World Index – which tracks the value of medium and large companies in more than 20 countries – has grown by an average of 7.3% over the last 25 years. While interest rates on child savings accounts can now be around 5%, for much of the last 20 years interest rates have been much lower.
Of course only you can decide what level of risk and return you feel comfortable with and what is right for you and your baby. The Beanstalk baby account is a stocks & shares Junior ISA, so suitable for someone prepared to take some risk.
Get the family to help!
It is obviously not just the parents that are excited to welcome a new baby into the world, friends and family also love to share in the joy and our experience is that many want to help out financially. Grandparents, in particular, often want to put some money away on a child’s birth and setting up an account for your baby means that that there is somewhere for them to make the gift.
With its unique family approach, Beanstalk makes this really simple. By inviting someone to link to your baby, they can then send gifts along with a personal message, straight to your baby’s account. You are notified about the gift and you can see who has given what. With our unique “full view” feature you can also decide how much information the other person sees on the baby’s account.
Opening an account should be simple
One of the things that deters new parents from opening an account for their baby is the complexity. It should be simple but some banks or building societies require you to go into branch with a birth certificate and investment firms can ask you for a significant regular contribution or one-off payment up front.
However, for Beanstalk it is really simple. The account opening process is all done within the app and it takes a minute or two from registration to having your baby’s new account all ready to go. Not only that but you can set up an account without making a contribution and top it up later; this could be a contribution you make, a donor makes or money you collect on our linked cashback tool that puts money straight into your baby’s account for free when you shop at one of our partner retailers.
So if you have a new baby on the way, congratulations, and don’t forget to open an account for them as soon as they are born!