Many families will have to repay child benefit. Why not earn interest in the meantime.
This week, more than a million families will lose their entitlement to child benefit, as the Government implements plans to means-test the money previously paid to all families with children.
However, thanks to the complicated way in which this change has been implemented, half of those affected will be left receiving the benefit only to have it claimed back later so the payments effectively become an interest-free loan.
Households in which someone earns more than £60,000 a year will lose child benefit entirely, while those in which the main earner takes home between £50,000 and £60,000 will lose some of the cash.
However, families can elect to stop receiving the money or to take it and then give it back later through their tax return. The tax office estimates that half a million people will opt to receive the money in the short term and have it clawed back later. For a family with three children, that is almost £2,500 a year that will be given and later taken away.
Obviously it makes sense to put the money away and earmark it to pay off the Government when you fill in your tax return. But could you get some benefit from it in the meantime? Here are five things you could do with your stored child benefit that could gain you or someone else some benefit.
1. Open a regular savings account
Regular savings accounts offer high initial interest rates in return for restricting the amount you can save. After a fixed period the rate drops dramatically, so they are good for short-term saving, such as stashing the Government's cash. Although rates generally are at rock bottom, some of these accounts give you a little more interest.
Try a Platinum Saver account from Cheshire Building Society if you live near a branch. This pays an impressive 5pc interest but cannot be opened online or over the phone. You need to put in between £100 and £500 a month, the perfect amount for a multi-child family, and you will be penalised if you miss more than one payment. You will have to pay tax on the interest you earn, but the net rate is higher than inflation.
West Bromwich Building Society offers a similar deal but with 4.1pc interest. It is also branch based. Norwich & Peterborough's 4pc Regular Saver can be opened by post and operated over the internet.
2. Take a chance on Premium Bonds
Ever fancied gambling with someone else's money? Now (Other OTC: NWPN - news) is your chance, if you put your child benefit in Premium Bonds. You can set up a standing order of a minimum of £50 a month or buy the bonds in blocks of £100, and the bonds enter the draw a month after you bought them. Once they are in the draw, each bond has an equal chance of winning various prizes of up to £1m. Anything you win is tax free, and you can get the money out any time you like.
3. Use an Isa
If you can't afford to use your tax-free allowance to save your own money, save the Government's instead. Nationwide will allow you to add cash to its 2.2pc one-year fixed-rate Isa once you have opened it and you won't have to pay tax on the interest you earn. Note, however, that it is better to keep your Isa allowance for your own savings if you have got them, as once you remove the money to pay it to the Government, you won't be able to put more in its place until the next tax year.
4. Use a children's account
Halifax offers a winning regular saver if you open it for a child under 18. You get 6pc interest and can pay from £10 to £100 a month in by standing order. Open one for each child and pay their child benefit into it, before withdrawing it at the end of the year and keeping the interest earned.
Your son or daughter has their own personal tax-free allowance so shouldn't have to pay tax on their interest. Just ensure that you fill in a tax form R85 in the branch.
5. Help others with a 'microloan'
Fancy using the Government's money to help others? Get a clean, shiny conscience with Care International, which will allow you to lend your child benefit to an entrepreneur in the developing world. Loans are generally repaid in about 12 months, and you can lend in £15 increments.
At present you could help a trader in the Philippines who is opening a restaurant, or a poultry farmer in Ecuador. The sting in the tail is that if something goes very wrong there is a risk that you will not receive all of your money back. However, if you spread the risk you shouldn't go too wrong, and you will have the satisfaction of knowing that your money is working hard.
You may even get updates on how the project is going. More information at lendwithcare.org .