UK Childrens' Savings Guide
Saving for Your Child - Two Reasons To Start Now
We all know that we should save money for our children's
future - but actually doing it is much harder.
There are frequently more urgent financial demands - plus
there is the difficulty of working out the best
way to make your money grow.
We would like to show you a couple of ideas that should
help explain why it's so important to start saving for your
children as early as possible.
Anything is better than nothing
Do not wait until you are sure you have the perfect savings
plan worked out before you start saving. Odds are, it will
never happen - and it doesn't need to, anyway.
Start now and start with anything - just do it
now.
(That's not to say that you shouldn't pay attention to
interest rates and move your child's money around to get
the best deals - it's just that the most important thing
is to start saving as early as possible.)
You can always
improve on your choice of savings account or investment
approach later on, once you've got started.
Starting early can make you far more money than anything
else you can do - and here's why.
Compound Interest
Don't be put off by the technical-sounding name. Compound
interest is very simple to understand - and very profitable
to receive.
The basic concept of compound interest is earning interest
on your interest.
For example, if you save a lump sum of money in year 1,
then at the end of the year you will receive interest on
that money.
In year 2 - even if you don't save any more money - you
will receive interest on your original savings plus interest
on the interest you earned last year.
Over a number of years, your interest payments will gradually
get bigger and bigger - whether you are saving
more or not.
Here are a couple of examples
to show you how compound interest works:
You save one lump sum and nothing else:
Initial deposit of £1,000
Savings left untouched for 18 years
Assume an average interest rate of 5%
After 18 years, your £1,000 will have turned into
£2,407
The effect of compound interest is even more powerful if
you regularly add to your child's savings:
Deposit £50/month in a child savings account,
every month for 18 years.
Assume an average interest rate of 5%
The total amount you have deposited will be: £10,800
The final value of your savings will
be: £17,333 (tax free if you are
saving in a Child
Trust Fund)
Compound interest is a powerful tool for making the most
of your cash savings and it doesn't require you to do anything
at all. Just leave the interest alone and watch it grow.
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to UK Childrens Savings Guide
also read
about Child Trust Funds
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