Kate, a 41-year-old photographer, says that financially they are "massively worse off" since their son, Jacob, was born – but he's worth it.
The biggest difference is that Kate now only works part-time. "It's by choice, so I can spend more time with Jacob," she says. What's more, Steven, 43, a plumber, is self-employed, so his income can be erratic.
But the couple are still managing to save, both for themselves and Jacob. They are doing this through the Child Trust Fund (CTF) scheme – a long-term tax-free savings account for children born between 1 September 2002 and 2 January 2011.
How the CTF scheme works
Under the scheme, each child was given a voucher for between £50 and £250 from the government to invest in a CTF, and for some children there was a further voucher provided when they reached their seventh birthday. Kate and Steven invested Jacob's £250 voucher when he was born and, with the help of his grandparents, pay in the maximum amount every year.
The couple chose an investment CTF rather than a cash CTF, and don't have any qualms about risk.
"We figured that over 18 years, any stock market ups and downs would hopefully be smoothed out and we hope to get a better return than we would from cash," Kate says.
The money can't be touched until Jacob reaches 18, and is earmarked for education or training, but they also save in a more flexible cash account for Jacob.
The annual investment limit for a CTF was increased from £3,600 to £3,720 on 6 April 2013 to match the Junior ISA limit.
The Junior ISA (for children that are not eligible for a Child Trust Fund)
The CTF scheme has now been phased out for new accounts, although those who already have one can continue paying into it. On 1 November 2011 a new tax-free children's savings account was launched – the Junior ISA.
The Junior ISA is open to children living in the UK who are not eligible for a CTF, but unlike with the CTF, the government doesn't make a contribution to children's savings.
How does the Junior ISA work?
- Junior ISAs are available as both Cash ISAs and Stocks and Shares ISAs. The value of investments in a Stocks and Shares ISA can fall as well as rise, so you could get back less than you put in.
- A child can have one of each with a total yearly limit of £3,720 payments into the accounts. This annual limit applies per tax year, whereas the CTF limit is applicable per birthday year.
- Interest made on the accounts is tax free.
- Children aged 16 or 17 can open both a Junior ISA and an adult cash ISA
- Like the CTF, the Junior ISA belongs to the child, however they won't be able to take the money out until they are 18.
- Once the child turns 18, the account becomes an adult ISA.
- Junior ISAs are available from banks, building societies, friendly societies, credit unions and stockbrokers.
Note: At the current time HSBC does not offer a Junior ISA.
Things you should know
The value of investments (and any income received from them) can fall as well as rise and you may not get back what you invested. For some investments this can also happen as a result of exchange rate fluctuations as shares and funds may have an exposure to overseas markets. You should aim to invest for at least five years. Any money held within a Child Trust Fund or a Junior ISA may not be accessed until the child turns 18. Please be aware that the value of tax benefits will depend on individual circumstances, and tax rules may change in the future.
The scenario included in this article is fictional and is not based on a real life scenario.
