Investing as little at £1.67 a day could mean you’re able to give your child £18,000 on their 18th birthday, according to new research.
DIY investment platform the Share Centre crunched the numbers and found that for less than the average price of a latte, parents contributing this sum – amounting to £609.55 a year – can give their child a significant financial leg-up once they reach adulthood.
But to raise £18,000 for your child, you’ll need to get lucky with investment returns and make 5 per cent a year from the stock market.
Investing just £1.67 a day for a new born child could result in a staggering £18,000 windfall by the time they turn 18
If you keep the sum invested and make 5 per cent the following year, you’ll have earned 5 per cent on the higher amount, leaving you with £1,103 at the end of year two.
By the end of year five, your pot is worth £1,276 and you have earned £60.80 in interest in total.
Using a tax-efficient wrapper
When it comes to investing for your children, junior Isas should be the first account to consider as they allow parents to build up a sizable pot tax-free.
At present, up to £4,260 – equivalent to £355 a month – can be saved into a Junior Isa every year.
No withdrawals are allowed until the child’s 18th birthday, except in cases of death or terminal illness.
Upon reaching 18 only the child (and no one else) can withdraw the money.
There are two types of Junior Isa; cash and stock and shares. Which of the two you should opt for is down to your attitude to risk.
With cash, 100 per cent of your capital is safe under the Financial Services Compensation Scheme safety net up to £85,000.
But most advisers recommend saving for children using stocks and shares because a long timeframe is likely to bring better returns.
Andy Parsons, head of investments at The Share Centre, said: ‘Lots of people are cautious about investing in the stock market, and with stories of businesses going under appearing in the media on a daily basis, that’s understandable.
‘However, if you can invest for more than 18 years, history says you should end up with more than you started with.
‘Simply put, set up a small direct debit and forget about it, remembering from small acorns, giant oak trees are grown.’