Children's savings account offer generous interest rates and help instil a good savings habit in your child.
Children's Savings Accounts
Want to teach your kids good financial habits? Want to save now for their future education? Well, a children's saving account might be just what you/they need. But, what type of account is right?
Types of children's savings account
Although children's savings accounts are more straightforward than their adult equivalents because children do not pay income tax, there are a number of types of accounts to choose from.
Each has different benefits and drawbacks, so you should think carefully before you rush to open an account. You will need to think about how you intend to save, and how much flexibility you will need in order to withdraw the money if required.
Easy/instant access accounts
These accounts offer the greatest flexibility since you can withdraw money at any time. However, flexibility comes at a price, and you (and your child) will forfeit the higher interest rates available on some other account types to retain this.
Regular saver accounts
These accounts tend to offer the best returns on savings, albeit there are typically restrictions on the amount you can deposit regularly (£x per month). So, if you already have an amount you wish to transfer, you will not realise the AER across the entire amount until you can deposit it. These accounts also do not permit transfers out for a fixed period - usually one year. After that point, you can transfer the savings to a nominated account (or your supplier will open one for you).
Junior ISAs are a tax-free saving option for people aged under 18 years old. As with their adult equivalents, Junior ISAs can be either cash (standard interest) or stocks and shares (where the value of the ISA is linked to the performance of the investments it has been used to fund). As with all investments, returns can go up or down. So, if you are risk-averse, this is unlikely to be a good option for you.
The maximum contribution you can make to a Junior ISA in any tax year is defined by HMRC at the beginning of every tax year (this figure tends to increase annually), and you (or your child more specifically) cannot access the money until their 18th birthday. At that point the money is legally theirs, and they can withdraw and spend it, or they can transfer it into an adult ISA.
Children’s fixed terms savings accounts are similar to adult accounts. Money is deposited for a fixed period to gain a preferential interest rate. Sometimes you can exit these accounts before the specified term, but it usually means forfeiting your interest, so only apply for these accounts after careful consideration.
Children's current accounts
We Brits are notorious for sticking with our current account provider and never switching, so it should be no surprise that banks are keen to get younger people to start banking with them early on. As such, some high street banks offer good interest rates on their young person's bank accounts. Of course, being a current account, you also have instant access to the money you deposit in these accounts, so they are pretty flexible. However, these accounts sometimes offer debit cards, so if you're planning to use them for savings, cut it up.