Saving for kids, most convenient?

NIMAN

I want to start savings accounts for the kids, and am not worrying too much about interest rates as I know they are pretty awful these days.

Main priority would be ease of setup, lodging, administration, safety etc.

Locally I have a Post Office, Credit Union, plus the BoI and AIB branches.

Which would you choose?

EmonMCC

None of those actually. Depending on your child's age you have several years of saving ahead of you. This is the perfect setup for putting money into dividend paying stocks. Saying to not care about interest rates is second only to not saving anything at all. You are aware that money in regular checking/savings accounts these days indeed destroys value instead of creating it?

Well picked dividend paying blue chip stocks or their ETFs can yield well over 5%. Investing in good stocks or ETFs is not much effort at all. Take a week or two to narrow down on what you want to buy, then set up a monthly lodging plan. After that you'll want to check in a few minutes every quarter or so to see if everything is still on track for your goals.

I understand it's not convenient but ask yourself to what lengths do you go to get your child ready for life? Isn't saving up for them at least worth the same amount of effort?

ike

The state savings Childcare Save account might be a good option. It currently pays about .25%

You can set it up to automatically divert the Child Benefit payments to it.

For the longer term you can use the ChildCare Plus. Pays 7% after 5 year

Henry Ford III

If it's for the longer term it makes sense to invest. Deposits and An Post will at best fail to keep pace with inflation.

Take a small bit of risk and you'll be rewarded.

Delta2113

When you have a lump sum -consider 3, 4 or 5.5 years with NTMA savings products via An Post. If you go for 4 years solidarity bond you get a card which is very handy. THey also have a 10 year bond.

Mrs OBumble

Is your goal to create an asset that you can use to fund your kids education and/or house purchase?

Or is it to teach your kids how to save regularly?


Quite different answers. Ideally you will have a mix of both in place.

NIMAN

Thanks all for the replies.

Ideally its to give them a start, plus get them into the habit of having an account and saving into it, hence the reason I was thinking of Post Office or CU accounts. I appreciate that these wouldn't have great returns but the convenience of them was appealing. Of course the idea of having a decent nest egg for future education costs is also on my mind.
I was considering putting each of their child allowance into each account, and the fact that this could be done automatically would also be convenient.

@EMonMCC, I am intrigued by your post, and appreciate that adding some risk will offer better returns. Is there anywhere I could read up more on what you advise? Might be tempted to go that route. The kids are currently 2, 4 & 6 yrs old.

Finally, another option which springs to mind is a UK based ISA. Since I work in NI and am paid sterling, plus still have a contact address there, would it be worth looking into paying into a tax free ISA or similar for them? Would it be a better deal than available in RoI?

AlmightyCushion

NIMAN wrote: »

Thanks all for the replies.

Ideally its to give them a start, plus get them into the habit of having an account and saving into it, hence the reason I was thinking of Post Office or CU accounts. I appreciate that these wouldn't have great returns but the convenience of them was appealing. Of course the idea of having a decent nest egg for future education costs is also on my mind.
I was considering putting each of their child allowance into each account, and the fact that this could be done automatically would also be convenient.

@EMonMCC, I am intrigued by your post, and appreciate that adding some risk will offer better returns. Is there anywhere I could read up more on what you advise? Might be tempted to go that route. The kids are currently 2, 4 & 6 yrs old.

Finally, another option which springs to mind is a UK based ISA. Since I work in NI and am paid sterling, plus still have a contact address there, would it be worth looking into paying into a tax free ISA or similar for them? Would it be a better deal than available in RoI?

From what I remember those tax free ISAs usually have good rates for the first year or two but then the rates drop really low. So, in the long term not much better than a standard savings account.

plasmin

http://digital.ulsterbank.ie/personal/young-people/savings-accounts.html

Opened this week

padraig.od

Pay it off your mortgage if you have one maybe. The whole family will benefit when you pay that 10 years early.

EmonMCC

padraig.od wrote: »

Pay it off your mortgage if you have one maybe. The whole family will benefit when you pay that 10 years early.

Well, this is a given. Investing before you have your personal finances in order doesn't make much sense. You can't borrow on one side paying 5 or 10 % interest (or maybe even 20% like on credit cards) and haggle about receiving 3 or 4% on the other side.

Mrs OBumble

Open accounts for your kids with the local PO or credit union. Take the kids in once a week or fortnight to make a deposit from their pocket money.

Do NOT put the children's allowance into these accounts: this money is provided by the state for the purposes of providing for the kids, not for teaching them that the government gives them money for nothing!

Consult a financial advisor for advice about the best way to manage your family money.

NIMAN

Thanks folks.

No major debt at present, so thats why it is now on the top of the list to get organised.

I suppose with the kids being so young, it would allow the possibility of investing in something slightly more risky and which would potentially give more return (since bank, PO and CU accounts will give next to nothing).

I like the idea of letting the kids come into the local PO or CU, get them into the habit of seeing saving as something to do.

EGavigan

One of the worst things you could do with your personal finances is overpay you mortgage at the expense of saving. I wrote an article on this but I can't link to it (as I am a relatively new user) so I've reproduced some of it below (I would put it in italics to signify that it was taken from somewhere else, but as a new user I can't be trusted to use italics!!)

If you find yourself with surplus income in your forties it may be tempting to overpay your mortgage, and many articles have been written about how much you can save in interest by doing this. The reason you can save so much in interest by overpaying your mortgage is because of the compounding effect, but this also works in your favour when saving or investing – see more on the very impressive power of compound interest here <link deleted>. If you overpay your mortgage for the full 10 years from age 40 to age 50 you will likely reduce it substantially however by doing this you lose two major weapons in your arsenal when it comes to accumulating wealth. Firstly, and most obviously you lose time, the lack of which is a massive disadvantage when it comes to building wealth. As a result of this you lose an absolutely huge part of the benefit of the compounding effect of saving. Secondly you lose the ability to get a decent return on your investments because as you get older and your time horizon to retirement decreases, investing in asset classes which pay good returns becomes more risky than doing so in your younger years when you have plenty of time to recover losses.

If you don’t build your wealth in your late-thirties and forties when the conditions are right, you are going to find it next to impossible to do so later in life. If you find that you have a very good surplus income available for investment in your mid fifties, say even €20,000 or €30,000 per year, you are still going to struggle to grow it substantially because you are unlikely to be comfortable taking enough risk to get a decent return and your time horizon is short.

Most people have a mortgage and if you don’t have one you probably pay rent. If you are comfortable with the amount of your mortgage repayment and as long as it will be paid off by your planned retirement date, look on it like rent and use your surplus income to build wealth while you still can.

end of article

This is me speaking again (this idea that new users can't use italics/bold etc is ridiculous)

The link which I had to delete out of the above text was to an article I wrote about the power of compound interest, which demonstrates that the earlier you start contributing to a savings plan which grows at a percentage of it’s value, the earlier you get over those initial years and get to a situation where you are accumulating wealth at a faster rate than you do initially.

I realise that some people won't agree with this but the fact is, if you concentrate on accelerating debt repayment that is all you will achieve and you will wake up one day, probably in your late fifties, with a modest mortgage and little or no wealth, and it will be too late to do anything about it.

The above comments are general in nature and should not be taken as financial advice as no assessment has been undertaken in relation to your financial situation or objectives.

NIMAN

Sorry but I don't agree with this, although I know the angle you are coming from! (like the italics>).

We overpaid our mortgage. It was a 15yr mortgage which was repaid in 6.
When the mortgage was taken out, the total interest for the 15 yr period was something like an extra €45,000 on the loan amount.

When the mortgage was repaid, I checked the amount of annual interest for each of the 6 years, and it amounted to something like €10,000. So we saved €35k in interest which we would hand to the bank for nothing, by overpaying the mortgage. Admittedly, I know we would have that all that money in savings now, but paying back annual interest is money you are paying for nothing, and if I had saved all that money, sure the interest rates for savings has been dung since 2010.

In your last line, you say that you might wake up in your 50s with a modest mortgage and little or no wealth, but don't forget that you still have the value of your home - outstanding mortgage. So if you owe €10k on your mortgage in your 50s, but your house is worth €300k, then you have wealth. Surely?

EGavigan

Hello Niman,

No, I didn't forget the house, but you have to live in the house. That's why I say that as long as your mortgage will be paid by your planned retirement date, your surplus income should be used to create wealth.

Don't forget that compound interest is very powerful. When you start contributing to a savings plan which grows as a percentage of it's value, the trajectory is fairly flat in the early years but it's gets pretty spectacular as you progress. It is therefore critical that you get over these early years early. You then start building wealth at a faster rate. Repaying a 15 year mortgage in 6 years in very impressive but that isn't representative of most mortgages or most people's ability to repay. Most mortgages are nearer to 30 years and most people, even if they accelerate repayments will take the best part of 20 years to amortise their mortgage. That is a lot of time spent neglecting the power of compound interest from an investing point of view.

Also, remember if you accelerate repayments to your lowest cost of finance which is a mortgage, you can never justify taking out a car loan, home improvement loan etc, as you would be discharging cheap debt to avail of expensive debt.

I wouldn't recommend this for everyone but I've met far too many people who have good incomes but haven't accumulated any real wealth. I wish I could link to the illustration of the power of compound interest as it really is impressive.

The above comments are general in nature and should not be taken as financial advice as no assessment has been undertaken in relation to your financial situation or objectives.

NIMAN

Would you have a suggestion on best way to save for young children?
What would be your investment choice?