This will provide them with a welcome boost as they try to pay for further education or the costs associated with moving in to their own accommodation. Considering the fact that interest also builds on the account over the years, it is a certainty that there will be a lot more in the account when it expires than there ever was put in to it.
How to Start a Child Savings Bond
Child saving bonds can be taken out on behalf of any child under the age of 16. It is essentially the same as opening up any other type of account, with many different banks and institutions offering them to their customers.
One thing to remember when investing in to a child savings plan like this is that it does need to be added to every month without fail. Although this amount is only usually at the most £10, failure to comply with this rule could result in the account’s balance suffering through a change in interest or a fine.
How Much Can Be Invested?
When it comes to investing in a bond like this, the maximum that can be placed in to the account every month is £25, up to a total of £270 per year. This applies for every year that the bond runs for, meaning that it is possible to go for over 15 years paying this same amount.
The way that the account is added to is completely down to the individual however. There are generally two different ways, which are a monthly payment or the placement of a lump sum to cover up to ten years. Obviously the latter option will result in a lot more interest being paid on the bond, but it does also mean a significant financial investment at one point.
Should this child savings plan be topped up with the maximum amount each month, the pay-out at the end of the 20 year plan should amount to approximately £3,882 plus any interest. This would obviously be a huge help to the child receiving it.
What are the Advantages?
The obvious advantage to child bonds is that they will accrue interest over the lifetime of their existence, meaning that the amount available upon maturity will be far greater than the amount invested.
The other huge advantage is that they are free from any tax when the money is finally withdrawn, meaning that they recipient gets to keep all of the money for their own uses. This even includes income tax and capital gains tax, although there is the requirement to pay tax on any dividends received.