Having a baby guide

Covering the costs of having a baby

Creating a budget before your baby is born is imperative to prepare for the multitude of new costs of having a baby that you are likely to incur. This guide will cover some of the costs and benefits that you may encounter, but more stringent planning will be required.

If possible, start saving early. If you haven’t looked at getting the best rates on your financial products, now is a great time to do so. A good savings account will go a long way to helping cover the cost of having a baby, so take a look at our guide and pick one accordingly. Similarly, credit cards and current accounts with favourable rates will make your money go further.

What childcare benefits am I entitled to?

First of all, you are entitled to maternity/paternity rights, which mean that your current employer has to pay you a certain percentage of your income and keep a position open for you for a specific amount of time. The Directgov website has more information on your entitlements.

Once your baby is born, there is a broad range of available childcare benefits that will help with the costs of having a baby. Your entitlement to these childcare benefits depends on your situation. Some, like free eye tests, are available to everyone. Others, like maternity allowance or Care to Learn benefit depend on your financial standing or age. The Money Advice Service has a guide to the tax credits and other childcare benefits that exist.

Saving for children

On top of covering the cost of having a baby, long term saving when your child is born will allow you to accrue a good amount of wealth for them once they grow up: for university, weddings or other big expenses that they may incur. Family members, friends or your chosen godparents may give you financial gifts when a child is born – and a savings account is usually the best place for them.

There are a variety of savings accounts available, and choosing a specific children’s savings account is not always the best option. Here’s a quick overview of your options:

Junior ISAs

Created as a replacement for child trust funds, junior ISAs allow a tax free investment of up to £3,600 per year. They are available to any child under 16 who does not already have a child trust fund. There are two varieties, cash or stocks and shares, and you can only have one open of each per child. Junior ISAs are a great way of saving, but remember that your child isn’t allowed access to them until they’re 18. For more information, take a look at our guide to Junior ISAs.

Children’s savings accounts

Children’s savings accounts are identical to ordinary savings accounts but built with children in mind. Bear in mind that the tax rules on savings are the same for children as for adults, so there is no tax benefit to putting money in a children’s account.

If your child earns more than £100 in interest on money that you have given them, the interest will be taxed as if it is your own. Children probably won’t earn over the tax allowance limit, however, so fill out an R85 form to make sure that enable them to receive interest without having tax deducted.

As with other savings, children’s savings accounts come in three types: regular savings, fixed rate or easy access. A lot of accounts offer ‘freebies’ as incentives – often toys or piggy banks.

Don’t feel that you are limited to a children’s saving account, if you’re opening an account for your child in your name then it might make sense to go elsewhere. Our guide to savings accounts has all of the information that you will need.

Protecting against disaster

It’s always a good idea to keep some money saved in case of emergency. Remember, an account that you can access immediately is paramount. There are number of options that are available to cover your family against a multitude of possibilities:

Income protection

If you fall ill or lose your job, providing for your family can become a tough task. Income protection insurance, in its various forms, will insure against this eventuality. This means that an untaxed income will be paid in the event of you being unable to work. The length of payment can vary, with short term policies limiting payment to 12 or 24 months.

Not all policies cover against unemployment and you may already be entitled to income protection from your employer, so consider your needs carefully before purchasing. More information on income protection can be found in our income protection guide.

Critical illness cover

Critical illness insurance will pay out a lump sum if you contract one of a set of listed illness, which can be used to cover treatment or to look after your family. Once again, the level of cover varies from policy to policy, so take a look at our guide to critical illness cover before selecting a policy.

Life assurance

Life assurance provides financial assistance for your family should you pass away, either by paying out a lump sum or an income on your death. Along with a well written will, this is the best way of ensuring that your family is looked after if the worst happens. It is worth remembering, however, that you may already have cover for your mortgage and your employer may already have some kind of life assurance policy set up for you. For an in depth look at life assurance consult our guide.

Top tips for having a baby

• Prepare a budget allowing for your fall in income, and prepare for the costs of having a baby by reviewing the suitability and rates offered by your mortgage, credit cards, bank accounts and other financial products;
• claim for your entitled childcare benefits as soon as possible;
• check out childcare facilities and the costs well before returning to work;
• use your Junior ISA for tax free savings;
• think about opening a children’s savings account;
• consider life insurance and other protection insurance;
• make a will.

With a bit of work, ensuring that the costs of having a baby don’t cause any financial problems shouldn’t be too hard. With Junior ISAs and children’s savings accounts you can look after your child’s future, and there are now more ways than ever of insuring against the worst possible eventualities. Our having a baby guide should have introudced you to some of the basics.