It’s really important to teach children about money, and opening a savings account for them is a great way to do this and encourage a regular savings habit in the future. This short guide talks you through some of the options available.
What's in this guide to Children's Savings Accounts?
- How do Children's Savings Accounts work?
- Pros and cons of Children's Savings Accounts
- Where are the best Children's Savings Accounts?
How do Children's Savings Accounts work?
Children’s savings accounts are simple cash accounts with a low minimum savings amount – typically £1. Some providers will allow children to operate their savings account themselves, with a parent or guardian as a signatory.
Just as with adult accounts, you can from choose easy or instant access, fixed-term bonds which lock money away for a few year, or regular savers where you must pay in each month for a year without making withdrawals.
The Junior ISA (JISA) is a savings account for children which sits within the ISA tax wrapper. Children have tax-free allowances just like adults and, as of the 2020/21 tax year, they don’t pay tax on the first £18,500 of income.
The JISA limit more than doubled this tax year, so you can now save up to £9,000 a year tax-free. You can choose a Cash or Stocks & Shares version of the JISA depending on whether you want to save or invest. Any adult can open and pay into one on behalf of a child, but the account will be in the child’s name, and they can make withdrawals once they turn 18.
The Junior ISA replaced the Child Trust Fund, another type of tax-free account which is no longer open to new savers, although you can keep paying into your account if you’ve already got one, or transfer it into a JISA.
Another savings option could be Premium Bonds, where you don’t earn interest but instead you get the chance to win prizes. You can even set up a pension for a child that they can only access at age 55, under current rules.
Pros and cons of children's Savings Accounts?
Interest rates are usually pretty good on children’s accounts - you can find deals that beat the equivalent adult savings accounts. Rates will not automatically be higher in fixed-term accounts for children though, so compare products carefully.
Some accounts come with a debit card so you can help older children learn more about banking and how money works.
The main advantage of a Junior ISA is that it’s tax efficient, and – this could be a pro or a con depending on your perspective – the cash is locked away until the child turns 18.
Balances in children’s savings accounts of up to £85,000 are covered by the Financial Services Compensation Scheme in the event a regulated provider goes bust.
On the downside, as a parent or step-parent, you’ll pay tax at your top rate on interest earned above £100 (above your personal savings allowance) on savings in a child’s name unless you save into an ISA.
Here are a few of the best Children's Savings Account deals available at the moment:
- The market-leading Halifax Kids’ Monthly Saver pays an AER of 4.5% fixed for one year. You can save £10-£100 a month but you can only make a withdrawal by closing the account. It converts into a lower-paying Kids’ Saver account after a year.
- Barclays’ Children’s Regular Saver pays 3.5% AER per year if you save £5-£100 a month, but the rate drops to 1.51% for months where you make a withdrawal.
- For an easy access account, HSBC’s MySavings accounts pays 3% AER but only on the first £3,000 you save, and 0.75% on anything above that. You can start with £10 and there are no withdrawal limits. Children aged 11 and above get a current account and debit card.
- The Coventry Building Society Junior Cash ISA pays 3.6% AER variable. There’s no access before the age of 18 and you can open and manage the account by phone, post or in branch.