How to make your child a millionaire by age 44 starting with just a few pounds a day starting this Christmas
CASH for Christmas could end up being a gift worth millions if you start early enough.
Just a few pounds a day stashed in a savings account could set your kids up for life – and will likely last longer than the average stocking filler.
Small amounts saved now can be worth a lot more later on thanks to interest which compounds over time.
And with certain accounts that are invested in the stock market, they can also benefit from investment growth.
Parents and grandparents thinking of a gift for kids at Christmas could be setting them up for life with a few pounds as a present.
Open a JISA – from £1, up to £25 a day
“Regular investing pays off,” said Alice Haines, personal finance analyst at investment platform BestInvest.
“If a family invested £9,000 a year in a Junior ISA for 18 years, based on a 5% annual compound growth rate the child would accumulate a pot of £269,048.
“If that money was rolled into an adult ISA at 18 and no more contributions were made, by the age of 44 the balance would have topped £1million.”
There are different types of savings accounts for kids but one of the better known are Junior ISAs, or JISA for short.
You can save up to £9,000 a year into the account tax-free – the equivalent of £25 a day.
It is also not subject to a parents’ Personal Savings Allowance.
Usually if a child receives more than £100 in interest from money given to them by a parent, then the parent is liable for tax on the interest if it is above their own Personal Savings Allowance.
The £100 limit does not apply to gifts given by grandparents or other relatives.
The Personal Savings Allowance is a tax-free amount you can earn as interest on any savings account, and is up to £1,000.
According to Alice, JISAs are good for long-term savings like university or a house deposit.
But leave it untouched and they could be quids in by their mid-forties.
They could also continue saving once their JISA becomes and adult ISA, and the amount they can save tax free each year jumps to £20,000.
Currently the best JISA rate at the time of writing is 4.95% is Coventry Building Society and you can open one with as little as £1.
But rates can change regularly so it’s always worth comparing accounts to find the best deal – we explain more on how to do that below.
We spoke to eight-year-old Eva Lockwood who’s already saving for a house deposit.
The pint-sized saver earns anything from £1 to £5 doing chores like tidying her room, as well as money from birthdays and Christmas.
She has nearly £5,000 in a JISA split between cash and stocks and shares.
Start a pension early – up to £10.23 a day
Another option for saving for children that could make them a millionaire even earlier is a pension.
While many people think of these as something for later in life, getting in early can pay off.
Alice said: “To reach that £1million mark earlier, a really savvy, and wealthy, parent that can afford to max out the JISA and the child SIPP allowances, could ensure their child has £376,668 by the age of 18.
“With no further contributions after that, the overall sum in both accounts could grow to more than £1million by the time the child turned 37.”
With a self-invested personal pension (SIPP), you can choose your own provider and how much you invest.
The Junior SIPP is the same as a regular SIPP – the difference is that a parent or legal guardian manages the account.
It also makes any investment decisions until your child turns 18.
The money in a SIPP can’t currently be accessed until age 55, but this will rise to 57 in 2028.
If you’re looking to open a Junior SIPP, keep in mind your provider will typically charge a fee to manage your investments, which will eat into any returns you make.
You can save up to £3,600 for your child in Junior SIPP each year – the equivalent of £10.23 a day.
Major investment platforms including AJ Bell, Fidelity and Hargreaves Lansdown, as well as Bestinvest all offer Junior SIPPs.
The minimum amount you can put in to open a junior ISA will depend on the provider.
Get started NOW
Anyone looking to get started saving should also make a move now rather than later, before savings rates fall, says Alice.
Even if you can’t max out the JISA or Junior Sipp each year, just a couple of pounds put away regular, Christmas and birthday gifts can still add up to a healthy amount that sets them up for their future.
“Savings rates have jumped up over the past year with some children’s accounts offering better deals than adult accounts, such as up to 5% on an easy-access account or two-year fix, and up to 5.8% on a regular saver.
“Rates are significantly better than they were a year ago, but parents need to move fast as expectations are mounting that the Bank of England base rate has already peaked raising the likelihood that the best deals will disappear soon.”
The Bank of England base rate is currently 5.25%. Members of the central bank’s Monetary Policy Committee vote each month on whether the base rate should go up or not.
The rate has increased from a historic low of just 0.1% since December 2021 in a bid to tackle high inflation.
Major high street banks use this to set the rates it offers customers on borrowing, like loans and mortgages, and savings accounts too.
Rates have gone up regularly over the past two years – and so have savings rates, which is good news for anyone with cash in the bank.
But that looks set to end as inflation is coming down. And some experts are even predicting that rates could fall next year, meaning savers could earn less interest.
Alice says: “Locking in the best savings rate possible is important to ensure a child’s savings pot delivers a positive return in real terms once inflation is factored in.
“With inflation now at 4.6% and expected to retreat to 2.8% by the end of next year, according to the Office for Budget Responsibility, parents should shop around for a deal rather than just picking the lender they bank with.
“Move fast to ensure the money toils away as inflation continues to beat a retreat.”
How to find the best saving rates
Parents thinking about opening accounts now should consider the child’s age, interest rates and the type of bank card they want, if any, she added.
Websites such as Moneyfacts.co.uk and MoneySupermarket can help you compare different savings accounts.
As well as ISAs there are easy access savings accounts, notice savings accounts, regular savings accounts, and fixed rate bonds.
They work in different ways and have pros and cons, so consider carefully what you’re looking for from an account.
For example, easy access means you can withdraw money whenever you’d like, but with notice accounts you’ll have to wait to get it, and might have to pay a penalty if you want to get at it earlier.
Easy-access savings accounts usually allow unlimited cash withdrawals. However, this perk means they tend to come with lower interest returns.
Regular savings accounts let you put away regular amounts each month, usually a couple of hundred pounds.
Rates can be high, for example, Nationwide has a regular saver offering 8% at the time of writing and you can save up to £200 each month.
But the overall interest you earn is limited, as there is a cap on how much you can deposit.
Notice accounts often offer slightly higher rates than easy-access accounts, but you’ll need to give advance notice to your bank (usually up to 95 days) before you can make a withdrawal or you’ll forfeit the interest.
Fixed-rate bonds offer some of the highest interest rates. However, if interest rates increase during your term you can’t move your money and switch to a better account.
Another option popular with some savers, especially grandparents and other family giving gifts is Premium Bonds.
You can start with as little as £25 in the government-backed saving scheme.
There’s no interest, but there’s a chance of winning prizes from £25 up to £1million and the odds are the highest they’ve been in years.
Anyone can buy them for kids under the age of 16, and they can hold up to £50,000 worth of them.
Find out more about Premium Bonds in our guide.