Child Savings Accounts: How to Choose the Best One
There are several different types of children’s savings accounts, and finding one that works for you will depend on a few specific needs.
A children’s savings account gives parents, and their family and friends, somewhere to save for a child’s future. It can also be a great way to teach your offspring about the rewards of saving.
How children’s savings accounts work
A children’s savings account is very similar to an adult savings account. You pay money in, and that money grows thanks to interest. You can open an account with as little as £1, and, depending on the account you choose, access the money whenever you like or have it locked away until the child turns 18.
Children aged over 7 can manage their own savings account, making deposits and withdrawals and checking on their balance to see how their money is growing.
What are the different types of children’s savings accounts?
There are several types of children’s savings accounts. The right one for your child will depend on their own individual needs and circumstances.
- Easy access accounts. You can withdraw money easily, whenever you like.
- Notice accounts. In return for a higher interest rate than on an easy access account you have to tell the bank a certain number of days (30 to 180 usually) before you can make a withdrawal.
- Regular savings accounts. By paying in money every month for a year. you can help your child catch the savings bug.
- Fixed rate accounts. The money is locked away for a set period of time (usually one to five years) in return for a higher interest rate.
- Junior ISA. Money is locked away until the child turns 18, but all growth is tax-free, and you can make deposits whenever you like.
Who can open a child’s savings account?
Children aged over 7 can open their own children’s savings account. They will then have control over the contents, meaning they can withdraw it without needing your permission.
However, some accounts need a parent or guardian to open the account alone or with the child. Who can open the account will depend on the provider’s own rules.
Tax on children’s savings accounts
Children are liable for taxes, the same as adults, but it's rare that a child earns enough to have to pay.
When it comes to a child’s savings account, any interest is liable to income tax. However, children also have a personal allowance of £12,500 before income tax is due. They also have the personal savings allowance (£1,000) and the starting rate for savings (£5,000). Altogether, this means that, provided they aren’t earning income anywhere else, a child would have to earn more than £18,500 in interest in a year before any tax was due.
There are additional rules surrounding money paid into a children’s savings account by a parent. These are aimed at stopping parents using their child’s account to dodge tax. If a child earns more than £100 interest a year on money deposited by a parent, the money will be liable to tax at their parent’s rate.
This means it is wise for parents to consider saving into a Junior ISA for their child. Up to £9,000 a year can be paid into a Junior ISA, and it is protected from tax until the money is withdrawn, regardless of how much interest it earns. However, it won’t work if your child wants to dip into the account to pay for, say, a new Xbox game, as they won’t be able to access the money until their 18th birthday.
What happens to my child’s savings account when they turn 18?
This will depend on the account, but most are automatically converted into an adult savings account. It’s important to check the interest rate when this happens. Chances are it will be time to shop around for a better savings account.
How to choose a child’s savings account
When it comes to choosing a child’s savings account you need to weigh up several things. Consider:
- Interest rate.
- How easy is it to withdraw your money?
- Can you manage the account online, via an app, by phone or in a branch?
Some children’s savings accounts come with gifts such as a toy or piggy bank. Just watch that you aren’t getting a pitiful interest rate in return for a bit of plastic.
Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more