Stakeholder Saving
Stakeholder Saving is a relatively new scheme introduced by the Government to give a helping hand to consumers trying to make a decision.
The plan for this form of saving scheme is that Stakeholder products should be easier for consumers to understand, information about the charges should be upfront and consumers must be clear about how their money is being used.
Now, depending on what type of saver you are will ultimately determine which form of Stakeholder savings product you choose.
There are four options to choose from - short-term, medium-term, long-term and child trust funds (CTFs).
The short-term Stakeholder option can be broken down into two further product choices - a mini cash ISA and a savings account.
The mini cash ISA option allows you to put away as little as £1 and earn interest on your savings every day. You also have instant access to your money because you are supplied with a cash card to use at an ATM.
The savings account option is very similar, however, the interest earned is liable for tax unlike the mini cash ISA.
The medium term stakeholder is similar to the short term in that it is also broken down into two more options. These however, are both linked to the stock market designed to be held for a minimum of five years.
The medium term ISA has a minimum investment limit of £20 and you have the added benefit of being able to add to it whenever you wish. Another advantage is that, unlike other stock market based investments, there are no set up fees with the stakeholder option.
The long term stakeholder savings scheme is very different to the previous two. The only product currently available that is regarded as being 'long term' is the pension.
As an employee you may be offered a stakeholder pension scheme by your employer, or there is also the option to set one up for yourself.
In order for a pension to qualify for stakeholder status, the product has to be flexible in allowing the consumer to transfer money in and out of the account without being penalised.
Switching funds to an investment with lower risk and having a minimum investment of £20 also have to be met by any stakeholder pension.
To invest in a stakeholder pension you will be subject to an annual management charge of up to 1.5 per cent.
The child trust fund (CTF) option was introduced by the government to encourage families to save for their child's future. Any child born on or after 1 September 2002 will receive a voucher worth £250 from the government to invest in a CTF.
When the child reaches the age of seven, the government will give them a further £250 voucher to invest in their CTF.
The stakeholder option is linked to the stock market and is designed to provide greater returns than the cash alternative CTF. However, with the prospect of greater returns comes greater risk, so make sure you are fully aware of what you are investing in and seek independent financial advice before making your final decision.
Parents, family and friends then have the option of topping-up the account - to a limit of £1,200 per year and like an ISA, there is no tax to pay on the investment, which the child receives when they reach the age of 18.
