Saving for Children: Children’s Savings Plans Explained

Saving for children, where do you start? Opening a child savings plan early is a great way to make a difference in your little one’s future.

If you’re unsure of the best way to start investing or saving for children, we outline the different options to help you get started.  

Here are some of the benefits of opening a Shepherds Friendly Junior ISA: 

• You can save from £10 a month all the way up to the annual allowance of £9,000.  
• Our plan is flexible. You can stop, start, raise and lower your premiums, and add lump sums to the savings plans too. 
• We help you increase the savings potential of a Junior ISA by accepting contributions from anyone who wishes to deposit money into the account, such as grandparents or other family members. 
• All funds invested belong to the child and cannot be withdrawn until their 18th birthday. 

Junior SIPP vs Junior ISA vs CTF, what’s the difference?

Saving for your child is a great way to help prepare them for the future. However, it’s important that you’re aware of the different types of child savings plans to decide what’s right for you. 

Junior ISA

When it comes to saving for children, a Junior ISA is a great option as it allows you to build savings from what you can afford.

Once your child turns 18, you can give them all the money and it’s tax-free. They can then decide how to use these savings and how to put them towards their future, whether that be their education, a car, or even a house. Or they have the option to reinvest the money into an adults ISA, for example our Stocks and Shares ISA.

Junior Stocks and Shares ISAs also have more potential for growth, in comparison to Junior cash ISAs and children’s savings accounts. At Shepherds Friendly you can open a plan from just £10 a month and add to your child’s savings with regular monthly payments or lump sums. 

Find out more about our Junior ISA in this video:

Child’s Trust Fund (CTF)

A Child Trust Fund is a tax-free savings account introduced by the government designed to save or invest over the long term. However, they are no longer available for children in the United Kingdom, as they were replaced by the Junior ISA. If you do have a CTF, then you can transfer it to a CTF with another provider, or to a Junior ISA. If you’re having trouble finding a CTF you took out in the past, contact HM Revenue and Customs (HMRC) and they will be able to locate your account and provider. 

Junior SIPP

A Junior SIPP (Self-Invested Personal Pension) is similar to a regular SIPP; however, the key difference is the account and any investment decisions are managed by the parent or guardian until the child turns 18. 

Saving for children: your options

Account	What is it?	Good for…	Risk	Tax	Access	Can I transfer it?
Junior ISA (JISA)	Save up to £9,000 a year in Cash or Stocks & Shares.	Most children.	Cash JISAs are low risk.  Stocks & Shares JISAs are higher risk but could earn more over time.	All earnings are tax-free.	Your child can take the money out at age 18.	You can transfer to another JISA provider. You can also transfer a CTF into a JISA.
Child Trust Fund (CTF)	CTFs are no longer available to open. Save up to £9,000 a year if your child has one.	Only available to children born between 1 September 2002 and 2 January 2011.	Depends on the type of CTF.	All earnings are tax-free.	Your child can take the money out at age 18.	You can transfer a CTF to a JISA.
Junior SIPP	The maximum that can be contributed to a Junior SIPP is £2,880 with tax relief at 20% taking the total amount to £3,600.	Long-term savings or retirement.	Risk is dependent on the underlying investment fund.	You get tax relief on what you save. Your child doesn’t pay tax until they take the money out at retirement age.	Your child can only take the money out when they retire, around age 57+. But this could potentially increase over time.	You can transfer a Junior SIPP to an adult SIPP when your child reaches the minimum age.

Choosing the right account

Choosing the right savings account for your child is a big decision that can impact their future finances. Think about your long-term goals. Do you want to help them with university fees, a deposit for a house, or save for their retirement?

Child Trust Funds can’t be opened anymore, but if your child has one, you might want to transfer it to a Junior ISA. The following information will help you decide what’s best for your child.

What are my long-term saving goals?

Short-term goals (e.g., university fees or first car):

• JISAs and CTFs are great for these goals. The money is available when your child turns 18, so they can use it for education or other expenses.
• Cash accounts offer more security whilst stocks and shares accounts aim for higher returns, but there’s more risk.
• Junior SIPPs are not suitable for short-term goals. The money is locked away until retirement age (currently age 55 to 57 but this could rise).

Medium to long-term goals (e.g., first home or retirement savings):

• Junior SIPPs are ideal for long-term growth. Your money could grow significantly over many years, especially with the tax relief on contributions. This gives your child a nice retirement pot.
• JISAs and existing CTFs can be used for long-term savings like a house deposit. If the child doesn’t use it for their first home, they can continue to save or invest tax-efficiently.

Who can pay into the account?

• Junior ISA: Parents, grandparents, friends, and other family members can contribute up to the annual limit, which is £9,000 for 2024/25.
• Child Trust Fund (CTF): Like the Junior ISA, anyone can contribute up to the annual limit (£9,000 for 2024/25). Remember, only children born between 2002 and 2011 can have CTFs.
• Junior SIPP: Parents or legal guardians can open and contribute up to £2,880 per year to a Junior SIPP, which becomes £3,600 after the government adds tax relief.

What are the saving limits for each child saving product?

• Junior ISA: The annual contribution limit is £9,000 for 2024/25. This covers both cash and stocks & shares options. The limit often resets every tax year.
• Child Trust Fund (CTF): The annual contribution limit is also £9,000. If the CTF already has government money in it, any extra contributions still count towards this limit.
• Junior SIPP: The annual contribution limit is £2,880, which becomes £3,600 after the government adds 20% tax relief. This does not affect your child’s adult SIPP or pension contributions later.

What happens upon maturity?

• Junior ISA: Your child gets full control of the account at 18 but can manage it from 16. They can choose to take the money out or continue saving. If they don’t do anything, the account automatically becomes an adult ISA.
• Child Trust Fund: Your child gets control and can access the money at 18. The account will either close or become an adult ISA, depending on the provider and your child’s wishes.
• Junior SIPP: The money is locked away until your child reaches retirement age. After this, they can take the money out according to pension rules.

Summary

Each account has its own benefits, so the best choice depends on your goals when saving for children.

• JISA: A good all-rounder for most children. It offers flexibility and tax-free savings, making it suitable for a range of goals like university or a first car.
• CTF: If your child has one, it’s worth considering moving it to a JISA to take advantage of the wider range of investment options and potentially lower fees.
• Junior SIPP: This is the best option if you want to start saving for your child’s retirement. It offers tax benefits and encourages long-term saving habits.

Remember to consider factors like how much you can afford to save, when your child might need the money, and your comfort level with investment risk when making your decision.

Opening a child savings account with Shepherds Friendly

Saving for children from a young age can help give them a head start in life. Nobody knows what the future will bring, and every parent wants their child to grow up prepared for the future. 

With a Shepherds Friendly Junior ISA parent or guardians can start investing in their child’s future from just £10 a month. You’ll get back at least what you put in, plus any bonuses, if the money stays invested until your child turns 18. Encourage them to add their birthday or Christmas money to see how their savings grow over time.

Teaching your kids about money can start with something as simple as pocket money. Think about how much to give based on their age and what they need to buy. Even better, why not link pocket money to chores? This helps them understand that money is earned by doing jobs. It’s a great way to teach budgeting, saving, and making smart choices with their money.

Who can open a Shepherds Friendly JISA for children? 

A Shepherds Friendly Junior ISA can only be opened by: 

• A parent 
• A legal guardian 

Once an account has been opened, relatives and friends can also start saving for children. To add money to the account there are a couple of different methods, one is setting up a monthly direct debit that can start from £10 a month and the second method is making one-off payments.

Another benefit is the child can take control of the account when they turn 16 but can only withdraw the money once they turn 18. For more information read our helpful guide on what a Junior ISA is.

Understanding the allowances and taxes when saving for children

With child savings plans like a Junior ISA there is an allowance you can invest before you begin to get taxed. The current Junior ISA annual allowance is £9,000. This amount is reviewed and set by the government each year and could potentially change in the future. 

If you have multiple child savings plans, then you’re able to spread the allowance over these accounts. For example, you can save £5,000 in a Junior Stocks and Shares ISA and £4,000 in a Junior Cash ISA without being taxed. For more information read our guide on What is the Junior ISA Allowance? 

Your child’s investment journey with Shepherds Friendly 

Shepherds Friendly’s Junior ISA can be opened from just £10 a month and is invested in our With-Profits Fund, which is a medium to low-risk fund that invests primarily in stocks and shares, with the aim of producing greater growth over the long-term than would be achievable in a cash-based account.  

Once we have paid a bonus into your child’s plan, we will never take it away, and the value of the plan will not fluctuate daily in line with stock market performance. The bonus paid quarterly will reflect the performance of the fund over that period. 

Please remember, when you take out an investment product, your capital is at risk, and you may get back less than you have put in.  

The value of the JISA depends on the future performance of the investments held in the fund and the bonuses we distribute from any profits arising from these investments. 

The money invested into a Junior ISA cannot be withdrawn early; it can only be withdrawn by the child when they reach the age of 18 years old. We will calculate the value of your investments in the With-Profits Fund if you transfer your plan elsewhere or when the plan reaches maturity. We do this to ensure you receive your fair share. If you have been invested through periods of poor investment performance, you may get back less than the current value of your plan. This is known as a Market Value Reduction (MVR). 

Be sure to read through our Important Information Guides for all the key information about our Junior ISA. Remember that when you invest, your capital is at risk.