Give a child £20 today and they will blow it on a toy that will be forgotten about long before the holidays are over.
But open a children’s saving account to deposit it in and they will have hands on experience with making payments and withdrawals, and earning money on interest.
There’s no question which one they’d rather have right now, but with Christmas fast approaching – and the large cash prezzies from grandparents that come with it – they could be sitting pretty by the time the new school year begins.
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A flexible saving vehicle
There is no minimum age at which a children’s saving account can be opened, although some banks will require a parent/guardian to open and run it until the child is between seven and eleven years old.
The accounts are tax free… up to a point. Once the account generates more than £100 interest during the year from money given by each parent, then the entire income is taxed at that parent’s tax rate (note that these rules are only applicable to parents, meaning relatives/friends can donate as much as they like).
With this in mind, some parents of children born after September 2002 may opt to save for their child’s future using a Child Trust Fund (CTF) instead, as these are completely tax free regardless of the amount.
Compare Child Trust Fund accounts here
More earning, less learning
Certainly this is a massive advantage, but the problem with CTFs is that the money is locked away until the child turns 18, at which point it becomes theirs.
The problem there of course is that the child is likely to blow it all on the first thing they see, as they do not have any financial experience. But because a kids saving account allows them to make withdrawals as well as deposits from the start, they will learn to be responsible with their money if they want to see it grow.
And with consumer groups putting increasing pressure on the government to make these accounts completely tax free, they could soon offer all the advantages of a CTF with none of the restrictions.
Compare children’s saving account here
So what’s on offer then?
Kids’ accounts tend to offer similar rates to standard saving accounts – usually between 6% to 6.5%, so don’t choose anything offering less than this - but in a bid to lure your child to their establishment, most banks offer free gifts or trinkets upon opening an account.
If you’d like to earn a higher rate, there is one card paying out an impressive 10%, provided you’re willing to jump through hoops, that is.
For starters, Halifax Children’s Regular Saver rate is only valid for one year, reverting to the standard Halifax Save4it account and its 6.05%. Similarly, miss a payment and you will be dumped immediately to the Save4it rate
And finally, your monthly payments are limited to £100, meaning you can’t invest more than £1,200 annually. No doubt Halifax has done this to prevent crafty parents looking to earn more interest on their own savings.
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Looking for something simpler
So as you can see, the rate is attractive but the small print is so confusing your child wont’ be able to make head or tale of it (so, good practice for when they experience adult saving accounts in other words).
If you’re looking for something simpler that your child could manage/understand, Chelsea Building Society’s Read Steady Save account is probably your best bet as it’s a true instant access account (£1 minimum investment and no maximum limit), and the 6.2% rate isn’t half bad.
