It is that time of year again when children across the country have just made their First Holy Communion or Confirmation.
Celebrations were back to normal this year allowing us to celebrate these memorable occasions in the company of family and friends. Children throughout Ireland received gifts, mostly in cash and although cash gifts were down during the recession, research has shown the ‘average’ cash gift was in the region of €500. As many as 1 in 5 children received up to €1,000. That’s a lot of cash for a child!
As this is probably the largest sum of money your children have received it’s a good opportunity to educate them on the ‘value of money’. Teach them not to buy on impulse and to consider how much items cost and to understand ‘wants v needs’. Encourage them to save their cash gifts and add a little motivation by putting a goal in place such as buying a new game when their savings reach a certain amount. By teaching them to manage their finances early on in life, it will help them develop skills for their life.
Where I should I put my child’s savings?
When saving you will need to consider where is the best place for your child’s recent windfall. Good options include a bank, credit union, post office or perhaps Revolut Vault. Until recently the main criteria for helping you make this decision was the highest interest rate on offer but this has changed – interest rates being at their lowest for over a decade.
Other factors you may consider are the age limit when setting up the account (as young as 11 with the EBS), is there a branch locally based? can the account be assessed online? (very important for our children who are so tech savvy) and the financial strength of the institution.
Many banks have Junior Savings Accounts and will offer special savings accounts for children. To open an account for a child under 7, you will usually have to open it in the name of the adult, with child’s name noted.
For children between 7 and 12 you usually have three options for the account – it can be
- a) in the name of the adult, with the child’s name noted.
- B) in the name of both the adult and the child
- c) in the name of the child only
AIB Junior Saver
The parent can open an account on behalf of their child. They will get an interest rate of 1% on the first €1,000 and then just 0.01% on anything over and above that. Ages 7 to 11 only.
- Rate – 1.00% AER
- Deposit book – not stated
- Online access – yes
- Easy access – yes
Bank of Ireland – Child Save Account
This is available to ages 7 to 12 only.
- Rate – 0.25% AER
- If the account balance goes over €5,000 you lose the Bonus Rate for good on the whole balance in your account and the variable rate of interest (currently 0.25%) will apply. Even if you reduce your balance back to €5,000 or less the variable rate of interest (currently 0.25%) will be applied. A conditional bonus is available.
- Easy access – yes
- Deposit book – no, but annual statement provided
- Online access – no
Credit Union – Children’s Savings Account
As a Credit Union is member owned, they are usually local and make your feel part of the community. They generally provide a more personal service and this can lead to a more positive experience for your child.
Savings in the credit union contribute to the loan fund, which directly benefits other members and helps develop the community. When your child is older they will be able to get preferential rates from the credit union on any loans they may need.
Revolut Vault
Junior Cards for age 7 to 17.
This is an easy way to help older children save. Children are getting Revolut Junior cards as part of the stepping stone to secondary school allowing them to have a little financial freedom. You as the lead parent will be alerted on their spending and can set control for their online and contactless payments. A Revolut vault can be set up separate to a main Revolut account and can be designated as a Savings vault where money can be added.
For the older children in your family, it is worth noting the ESB have a ‘Teen Savings Account’ for those aged between 12 and 17 which can be set up as a joint account. AIB’s Student Saver Account is also an option but with 0% interest payable and with no joint account available.
Don’t forget once of the easiest ways of helping your children to learn more about money is to talk about it within the family home and lead by example! If you haven’t already got a savings plan in place, have you considered setting up a long-term plan for your children/grand-children?
Did you know?
Did you know that you can avail of the €3,000 Small Gifts Exemption rule (€6,000 from a married couple) and invest in a unit-linked savings plan for your child/grandchildren. By saving and assigning it to your child/grandchild from the outset, you can make full use of the annual Gift Tax exemption.
As the savings plan is legally assigned to the child, the contributions to the savings plan count as gifts to the child. The child will be entitled to the proceeds of the policy because under the assignment, they are the owners of the policy as assignees. Provided the client stays within the annual gift tax exemption, the child will not incur any gift tax either when contributions are made or when the plan is encashed.
Another idea is to invest your children’s allowance of €140 per month into a long-term savings plan (unit-linked). If you saved from birth you could potential build up to a fund of over €43,309* by the time the child reaches the age of 18. Your child could then access this fund and use it to give themselves a better start in life.
*A gross investment return of 4.10% per annum is assumed here for 18 years. The figures shown allow for the deduction of tax (currently 41%). Contribution increases of 2.5% per annum are assumed, with an annual management charge of 1.25% and an allocation rate of 101%.
Warning: These figures are estimates only and are not guaranteed. The value of your investment may go up or down.
For expert advice on your savings needs, contact Gráinne on grainne@sunrisefinancialplanning.ie
