13 Mar 2017

Investment options to keep 'Bank of Mum and Dad' afloat

Investment options to keep 'Bank of Mum and Dad' afloat

Anyone with children will be familiar with the ‘Bank of Mum and Dad’ and how close it (regularly) comes to requiring some quantitative easing.

Last year, Bank of Mum and Dad loaned almost a third (29%) more money to their children compared to 2015, according to research from the Bank of Scotland.

Parents forked out on average £3,987.22 to help their children financially in 2016, rising from £3,079.91 the previous year.

There was an increase in children aged 18-24 taking a loan from Bank of Mum and Dad, rising from a quarter in 2015, to over a third (34%) in 2016.

More Glaswegians borrowed money from parents than any other region (28%), followed by Aberdeen (24%), North East Scotland and Lothians (both 19%).

The best way to ensure future financial stability for you and those money-sapping children  is to start saving as soon as possible.

If you really want your money to grow, you need to think seriously about where you put it.

Stocks and shares ISA

Individual Savings Accounts (ISAs) allow you to hold up to £15,240 (soon rising to £20,000) of investments tax-free.

While a cash ISA is simply a tax-free savings account, a stocks and shares ISA is a tax-efficient investment account that lets you put money into range of different investments, including unit trusts, open-ended investment companies and investment trusts, as well as government bonds and corporate bonds. 

You can also buy individual company shares and put them into your ISA. So, unlike with cash ISAs, you should only invest if you're prepared to take the risk that your investments can go down, as well as up, in value.

The benefits of ISAs

ISAs offer a unique range of benefits:

  • No Income Tax is payable on interest payments which are made by bond funds
  • No higher-rate tax is payable on dividends which are paid by equity funds (you can't claim back the 10% dividend tax paid by the fund in an ISA)
  • You can access your money whenever you need to, but it cannot be returned (if you withdraw your ISA, you will automatically lose all of its tax benefits)
  • Income from an ISA does not affect your personal allowance or age-related allowance
  • No Capital Gains Tax is payable on any growth you may achieve, so you could use withdrawals to increase your income when necessary

Saving for your children

Although children don't usually have income of their own, what they do have is time on their side.

The earlier you start them off saving, the more chance the money has to grow. This can be particularly welcome when, for example, they need funds for higher education or buying their first home.

Junior ISAs offer investors a straightforward way to save for a child's future and offer similar tax advantages to 'adult' ISAs but with a lock-in, making the child's investment inaccessible until they turn 18.

Independent financial advice

If you would like to speak to one of our independent financial advisers about saving for your or your child's future, click here.

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