In this guide we take a look at the best childrens' saving accounts, and how to take advantage or their tax free allowance.
It seems kids have all the fun. Not only do they get to act like kids, they also get some of the best savings rates around. Whilst interest rates for adults have been dropping faster than the proverbial stone, children can still earn a whopping 3.5% on their savings.
Not only that, but saving as a child also teaches them how their money can work for them through compound interest, and helps them develop good habbits for later on in life.
Helping your child to save
Kids learn by doing. however when it comes to saving many of the benefits are deferred or hidden, so it might help to explain and demonstrate some of the finer points of saving to them.
The piggybank vs the highstreet bank
Younger children in particular might enjoy having their cash locked away in a piggy bank or money jar. After all they can feel it, and see it's there. This a great opportunity for parents to teach them about security i.e. their money is safe in the bank and if anything happens they get it back. On the other hand if their brothers or sisters swipe the piggy bank, it's gone. Okay, perhaps not in those word, but you get the idea.
It's also the perfect time to tech them about. In the piggy bank their money sits there doing nothing, yet in a savings account they are lending the bank money, and the bank pays them for the this.
Let them choose their own account
Older kids especially might have a vested interest in their savings. Work with them and choose an account together. Talking about the pluses and minus of the various accounts, and don't let them be swayed by freebies on poorer accounts.
Choose an account that you can both monitor online to make it easy for them to see exactly how much they've saved.
Work with them to agree an amount to save
If the child receives pocket money or other spending money, consider discussing with them an amount to save. If they ask for an increase in pocket money this could be on a condition that certain amount of it is saved. you can also use a multipler effect, so that every £1 they save you save £10 for them.
Tax on children's savings – What do parents need to know?
It's a common myth that children don't pay tax. In many cases they similar tax allowances to adults. We won't get in those here, but there is one important thing to note. That is if a child receives more than £100 in interest during the tax year from the money given to them by a parent, then the parent will have to pay tax on that interest if it is above their own person savings allowance. This is per parent, so with two parents paying into the account the child could earn £200 in interest. It does not apply to grandparents, friends or other relatives.
Savings accounts vs Junior ISA
One important consideration is whether you want to open a Junior ISA for your child. Junior ISAs operate in much the same manner as adult ISAs though the maximum yearly deposits are capped at £9,000. This money is tax free, and is locked away until the child turns 18 years old. It can then be cashed out or put into an adult ISA.
Normally there is no reason to open a junior isa where regular savings accounts are offering higher interest rates, unles you want to lock the money away until they are 18, or money paid into the child's saving account would earn more than £100 interest per parent, and you'd already maxed out your personal savings allowance.
The top junior ISA currently from Coventry Building Society and pays 2.95% interest (variable).
The top kids regular saver accounts
These account let you put away £5-£100 per month for up to a year. They make up for these limits by paying some of the highest interest rates available, however they come with strict rules around withdrawals.
Dudley Building Society
Overall top pick
The Dudley Building Society Junior Easy Saver is our overall top pick when comes to children's saving accounts. It offers a joint best in class 3.5% fixed interest rate for 12 months, but also has the highest pay in limits of our all our regular savers at £150 per month versus £100 a month for the Halifax and Barlcays equivalents.
The account is available for children between 0-16 years old, but where it falls down is on accessibility. It can only be opened in branch (with branches limited to the Dudley and Wolverhampton areas), or via post. It is not possible to withdraw money from the account.
Maximising the account would result in a total balance of £1,834.05 i.e 12x £150 plus £34.05 interest
Halifax Kids Monthly Saver
Our top pick
The Halifax kids monthly saver is a regular saving account for children up the age 15 or under. It's the joint top regular saving account paying a fixed 3.5% interest for 12 months. After that it switches to the Halifax Kids Saver account.
The account can be opened online or in branch and allows you to pay in between £10 – £100 per month. You can mis a month, but you cannot make any withdrawals.
Payment must reach the account by 25th of each month
Barclays Children's regular Saver
Best if you ever need to withdraw
The Barclays Children's regular saver matches the 3.5% interest of the Halifax account, in some ways it's more flexible. With the monthly payments of between £5-£100, and it allows withdrawals too. Careful though, any withdrawals will drop the interest rate to 1.51% for that month.
It just misses out on being the top pick as can only be opened in branch which in the climate might not be the easiest or the safest option.
Regular savers – the best of the rest
- 3.02% fixed for 12 months
- Available to children under 15 years old
- Pay in £5 – £100 a month
- Open in branch of by post
- Estimated balance after 12 months – £1,219.46
- 2.5% fixed for 3 years
- Available to children up to 17 years old
- Pay in £10 – £150 a month
- Open in branch or by post
- No withdrawals possible
- Estimated balance after 36 months – £5,611.27
- 2.5% fixed for 12 months
- Available to children aged 15 years or younger
- Pay in £10 -£75 a month
- Open in branch only
- Estimated balance after 12 months – £912.22
The best childrens easy access savings accounts
Easy access savings accounts are best for large/lump sums and ad hoc savings. The interests are not fixed and so can be subject to change, but despite often being slightly lower than the best regular savings accounts, easy savings accounts allow savings on larger deposits, allowing interest to build up more quickly.
Our top easy access savings pick
This HSBC child account, pays 2.5% interest on savings balances of between £10 – £3000. Savings over this amount will earn a lower rate of 0.25%. The account can be opened online but only for parents who already hold a HSBC account, otherwise it must be opened in branch, and is available for children from 7 – 17 years old.
Santander 123 Mini
The highest paying easy saver
The Santander 123 Mini easy access childrens saving account is the highest interest easy access account in our list. With a 3% interest rate made up of 1% on balances below £1000, and 2% on balances over this amount. There is no upper limit on deposits, but only the first £2000 earns interest. There is also the catch that if your child is under 13 years old, you need to have a Santander current account yourself. Additionally, whilst the account can be opened online for children over 13 year old, accounts for younger children must be opened in branch.
TSB Under 19s account
The best For teenagers
Although not strictly a savings account, the TSB under 19s account pays 2.5% on balances of up to £2500. And depend on the childs age also offers a debit card, mobile payments, online banking, and driving lesson discount with the AA. It is available to children between 11 – 17 years old and must be opened in branch. Those 16 and over can open the account alone, below that age a parent or guardian must be present.