Whether you want to invest money for your little prince or princess's future, or they're keen to open their first savings account themselves, it pays to shop around for the best deal.
In this guide, we'll look at:
The sooner you can start saving for your child, the better – even if it's a relatively small amount. That's because money kept in a savings account over a number of years can benefit from compound interest.
The great thing about compound interest is that your child's money snowballs…
Note that even though you'd pay the same amount into the account, that £30 invested every month for 18 years far exceeds the return you'd get on £60 invested for nine years – by £1,152.53 to be precise!
The majority of savings accounts for children allow you to open an account from birth, although some require the child to be a little older. Be mindful that some accounts set a maximum age, too – they don't all automatically run until your child reaches the age of 18, or even 16, and there are some children's savings accounts that only run until your child reaches the age of 11!
There are four main types of children's savings accounts: fixed rate bonds, regular savings accounts, notice accounts and easy access.
Some banks and building societies like to offer freebies (often a moneybox) to entice your child to save with them. While freebies are good, remember that it's the suitability of the account for your child, as well as whether the account is competitive, that should be the main factors in your decision.
Fixed Rate Bonds
Fixed rate bonds tend to pay higher interest rates, and can be available on terms of anything up to five years.
Get a better rate for a lump sum you have to invest for your child.
Regular Savings Accounts
Regular savings accounts can pay fixed or variable rates of interest. They are designed to help you get a nest egg built for your child by requiring a minimum amount to be paid in each month.
Get a better rate on the regular amounts you save for your child.
Notice savings accounts can pay a higher rate of interest than an easy access account. They can be great if you have both a lump sum and a regular amount to save.
You could get a better rate than on an easy access account.
Easy Access Accounts
Easy access accounts allow you to make withdrawals from the account without giving any notice. Some accounts also have a cash card and can be good for a child who wants to have access to their savings.
Your child can get quick access to their savings; it can be a great starting account to get your child used to managing their money. Many easy access accounts actually pay more than the top notice account rates.
In most cases, children don't pay tax on their savings interest. This is because the majority don't receive enough income to exceed their personal income tax allowance of £11,500 (in the 2017-18 tax year). Interest is now paid by banks or building societies without tax being deducted so there should be nothing further to do for the child's tax position.
However, there is still a little known issue with interest paid on savings for children. If the interest earned on cash you have given to your own child exceeds £100 per year, then this is taxed as if it were your own interest. Any cash given by grandparents or other family members or friends isn't subject to this £100 limit.
If you want to reclaim tax for your child that has been paid when it shouldn't have been, you can complete HMRC form R40 to get this back.
As we said earlier in this guide, most children don't pay tax: so why would you invest in a tax-efficient Junior ISA (JISA) or Child Trust Fund (CTF)?
Compare children's savings accounts
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More savings guides
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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