Thinking of setting up a bank account for your children? Here’s a rundown of the best bank accounts for kids.
Parents often complain that children should be taught more about money management in school. But one of the good ways of introducing your kids to looking after their money is opening a child’s bank account.
Many banks and building societies now allow mums and dads to open a current account for their child from as early as 11 years old. An introduction to banking like this will give youngsters a valuable lesson in financial management.
A key difference with the accounts adults have for themselves is that the children cannot go overdrawn – a scenario that would cause multiple problems if left unchecked. Other than that, the accounts work pretty much as normal.
In the past, the banks would reward account opening with a piggybank or school-related freebie, but now the allure is offering credit interest, which in adds an appreciation of saving to a young person’s money skills.
However, it’s worth noting that the interest rates offered on child current bank accounts will be lower than they are in a young person’s savings account. For many parents, the better reward is understanding how to manage a current account from an early age.
How do I open a child bank account, and how do they work?
Opening a child bank account is simple, and in many cases, you can do most of it online. At some point you and the child will need to visit your branch with proof of IDs (a passport or a birth certificate) plus a household bill (normally a utility bill) showing your address.
Once you get approval, usually within hours or days, your child will have access to his or her new account. While there will be no overdraft facility, these accounts can do many of the things that adults are used to. Direct debits can be set up, together with standing orders, and they can make one-off bank transfers.
Children under 16 can also receive a debit card, but only if the parent approves. These cards can be used to withdraw cash at ATMs, and can also be used in shops and online with a contactless option. If you have worries about your little dear going on an ill-advised spending spree and burning through his or her account, then they can get a cash card that will only work at ATMs, with a daily limit (there will be charges for using them abroad on holiday).
Like you, children can usually use a banking app to keep track of their account, and it might be a good idea to encourage them to show you their app every week to get them used to being open about their spending and receiving your advice on good practice.
If you don’t like the idea of a debit card, there are many options for prepaid cards for children. These must be loaded with cash first and can then be used in a wide range of retail environments. You need not worry about adult services or gambling, as these sites will already be restricted.
Child bank accounts and tax
Your child will have to make a considerable amount in interest before any income tax kicks in. Children get the normal tax-free allowance of £12,500 plus a £5,000 starting rate for savings and a £1,000 savings allowance. In other words, they would need to accumulate over £18,500 a year in interest before having to pay tax at a tender age!
If parents gift money that accrues more than £100 a year, they will need to pay tax on that income.
So, with all that in mind, what are five recommended child bank accounts?
While this account offers much the same as others, we’re listing it because so many parents will have accounts there already. If you’ve been a Barclays customer for years, it makes sense to start your child off with the same bank.
Kids of 11 to 15 can use the account (16 to 19-year-olds can use a Young Person’s account), and they get a parent-approved debit card, with personalised photo option, but this cannot be used abroad. The contactless debit card can be used in-store or online, and at 13 you can add Apple pay as an option, too.
It needs just £1 to open an account, and there are no charges. The credit interest rate stands currently at 0.6%.
Available from the age of 11 through 18, this account pays 0.5% interest on account balances under £2,500. Over 13s can begin the application process online, and they can get a Lloyds Bank Visa debit card with contactless functionality, or a cashpoint card.
Young customers will get access to a mobile banking app, internet banking, in-branch service or telephone, together with free mobile alerts.
If your children are aged 11 or 12 they must apply in branch with you.
If interest is important, then look at the Santander child bank account option. It pays 1% interest on accounts of £100 and 2% at £200, but this goes to 3% on balances from £300 to £2,000.
However, the slight drawback is that for children under 13, the account must be opened in trust and managed by an adult who has parental responsibility and have a Santander personal current account. If the child is 11 or over, the trust can then be overridden, and responsibility handed to the child so that they can access ATMs. Cash and debit card options are available.
From the age of 13, children can open a 123 Mini account themselves.
For ages 11 to 17 with a choice of cash cards or debit cards, this account pays 1% interest on balances up to £1,000. Use your debit cards alongside Apple Pay, Google Pay or Samsung Pay anywhere that Contactless payments are accepted.
There are no fees for the account (this is standard across just about all child bank accounts), and you can manage your money via mobile and internet banking, plus Nationwide has recently added text alerts, so children can always be up to date with the status of their account.
Accounts can be opened in a branch, where under 16s must be accompanied by an adult with parental responsibility. Online applications are only available for the over 14s.
MyAccount is for children aged 11 and above (although seven-up can access MySavings accounts).
The MyAccount comes with a Visa debit card for online and store shopping, and an ATM daily withdrawal limit of £100 (assuming there are funds available).
One nice touch is that children get a free British Cycling fan membership, worth £25, giving priority access to major UK cycling events.
Child bank savings accounts
If regular money management is not required or if high-interest payments are suitable, then you should opt for a child savings account (nothing is stopping you having a current and a savings account, of course).
However, while your child will have the benefit of higher interest rates, these accounts often come with withdrawal restrictions.
For example, the Halifax Kid’s Monthly Saver boasts 4.5% interest, fixed for a year on accounts adding between £10 and £100 a month – but it doesn’t allow withdrawals. If you wanted to access the cash, the account would have to be closed. The Halifax Kid’s Saver account will be opened at the same time as the monthly saver and the funds transferred there after the year is up. It runs on 2% interest.
The Barclays children’s regular saver pays 3.5% interest for a year when saving up to £100 a month. The rate falls to 1.51% if you make a withdrawal and is converted to a 1.85%-paying instant saver after a year. The regular saver account is available from birth to the age of 16.
Money expert Martin Lewis also recommends the Saffron Building Society Regular Saver where the children’s saving account pays 4% on savings up to £100 a month. You can make withdrawals, but you must apply in branch or by post.
After one year, this account automatically switches to a Maturity Easy Access account unless you instruct otherwise.
No time like the present to open a child’s bank account
Now you have a solid understanding of children’s bank accounts of both the current and savings variety it’s time to seize the moment and open one. The sooner you can introduce your child to the world of money management and being responsible financially, the better.
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Simon Young was a journalist for 20 years, becoming a news editor on national newspapers including the Sunday Express. He went on to lead the teams at one of the world’s largest online companies before setting up Magic Word Media.