Give your child £18,000 on their 18th birthday by saving just £1.67 a day

PARENTS could give their a child a whopping £18,000 windfall to start their adult lives with by simply saving £1.67 a day.

That's because if you stash this amount into an investment account and leave it alone it'll be worth £18,000 in 18 years' time, according to The Share Centre.

The investment company says this saving is based on the 5 per cent average annual return over the last 18 years for those who invested in a fund tracking the fortunes of the FTSE All Share index of UK companies.

You also need to keep any profit you make in the account – an effect that's known as compound interest because you're effectively earning interest on your interest.

To get the same sum from a cash savings account you'd have to contribute nearly twice as much at £2.65 a day – based on an account that pays just 0.35 per cent.

This is because cash savings typically pay much less than investments. See our top savings accounts guide for the best buys.

How to start investing

BEFORE investing you need to be aware of the risks, as unlike cash, what you save can go both up and down.

This means you can be left with less than what you started with.

And you're not protected by the Financial Services Compensation Scheme (FSCS) which covers cash up to £85,000 per financial institution.

There are of course ways to reduce the risk of investing – for example you could opt to invest in cheaper so-called "passive funds" that track the fortunes of various stock markets, such as the FTSE100 or FTSE All Share indices.

Investing in actively managed funds – that pool different types of investment together – is also less risky than just investing in individual companies, known as shares. This is because you're spreading your risk across a range of companies or other types of investment, such as bonds or property.

Robo-investing – where a computer determines what you should invest in based on a questionnaire of your preferences – also comes with lower risk as it's spreading your investments.

If you feel confident, you can start investing by setting up an account on an investment platform – a sort of supermarket of different investment products. And you can do all of this within a Stocks and Shares Isa wrapper. Do check the fees first.

If you're unsure, you should always seek professional advice – you can use comparison services Unbiased or VouchedFor to find a suitable financial adviser.

And the same goes for other milestones. The Share Centre reckons you need to invest just £1.57 a day to generate a £21,000 lump sum by your child's 21st birthday.

While investing £30,000 by your child's 30th, means you only need to put away £1.16 per day.

Andy Parsons, head of investments at The Share Centre, said: “As Albert Einstein famously stated, ‘compounding interest is the eighth wonder of the world' and these figures clearly demonstrate this.

"Providing you set yourself a long enough timeframe and remain committed to investing, the results can be truly fantastic.

“Lots of people are cautious about investing in the stock market, and with stories of businesses going under appearing in the media on a daily basis, that’s understandable.

"But if you can invest for more than 18 years, history says you should end up with more than you started with."

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