Children’s savings accounts come in a variety of formats, much like with adult savings, with it possible to get fixed rate bonds, easy access and regular savings accounts that are all designed for children. (There are also Junior ISAs and Child Trust Funds if your child was born between 1.9.02 and 2.1.11, which are discussed elsewhere.)
This is to provide accounts that can meet both short and long-term goals. On the one hand, a grandparent might be looking to put money aside to help a child far in the future, such as helping them raise the deposit on a house or buying a car, in which case a fixed rate bond could be ideal – that way, a lump sum can be invested that can remain untouched for a number of years, though the money may need to be moved when the term of the initial bond concludes.
On the other hand, the child themselves may wish to deposit surplus birthday money in a suitable account until they see something that they wish to buy, in which case an easy access account or perhaps a regular saver would be ideal. Such accounts could also be a great way to get children into the habit of setting money aside and to teach them about the value of saving, particularly if they get to watch their pot grow through the magic of compounding.
This all depends on the age of your child. Some accounts will allow you to open an account for your child from birth, while others may have an older minimum age requirement, and yet more allow the child themselves to open the account when they reach a certain age. Similarly, not all children’s savings accounts will run until your child is 16 or 18 – some end when a child turns 11, or 13 for instance. Essentially, it all comes down to the individual account, so you need to check the features and small print of each potential deal to see if it works for you and your child’s circumstances.
Most children don’t pay tax on interest they earn from their savings, as it’s highly unlikely that they’ll earn enough interest to breach their personal tax allowance (which is £12,500 for the 2019/20 tax year).
However, parents may have to pay tax instead, but again it isn’t that likely. If a child earns more than £100 in interest on money given to them by a parent or step-parent, there will be tax for you to pay – unless that money is in an old Child Trust Fund or Junior ISA – as it’s taxed as if it was the parent’s own interest. This limit doesn’t apply to cash given by grandparents or other family members, however.
If you want to make sure that all interest can be earned tax-free, and specifically want to save for your child’s future, you may want to look to Junior ISAs. These allow you to save up to a certain amount each year – which for the 2019/20 tax year is £4,368 – without any tax liability, and your child won’t be able to access the funds until they turn 18. Find out more about Junior ISAs by reading our guide, or head straight to our Junior ISA hub where you can search for suitable accounts.
To find the best children’s savings account rates, simply use our savings search tool and you’ll be presented with a list of the top options that meet your needs. However, you may want to speak to your own (or your child’s) current account provider as well, as you’ll often find loyalty or linked children’s savings accounts that pay far higher rates of interest.
That said, don’t be afraid to look to lesser-known names, and bear in mind that it can often make sense to go for smaller mutuals. Building societies are often known for offering generous children’s savings accounts, and challenger banks are increasingly getting in on the action, too.
Read our guide to find our more about Challenger Banks.
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.