What is a children's savings account?

It is a savings account that can only be opened by, or on behalf of, a child under 18.

You can open a children's savings account with most banks and building societies.

They usually pay a slightly better interest rate compared to adult savings accounts, which makes them a good way to save for your child's future.

How can you save for your child?

There are a number of ways, including:

Instant access savings

They let you pay money in and take it out whenever you want, but do not usually offer very competitive interest rates.

If you think you will need access to your child's savings then an instant access savings account could suit your needs.

  • Withdraw anytime

  • Low interest rate

Regular savings

These accounts let you save on a monthly basis. There is usually a maximum amount you can pay in each month, for example 100 per month. They can offer a high interest rate and instant access to your money.

  • Flexible access

  • High interest rate

  • Only save small amounts at a time

  • You have to pay every month

Fixed term savings (bonds)

You can take advantage of higher rates by locking your child's savings away for up to 5 years.

You have to be prepared to leave the funds until the end of the term as you cannot make withdrawals without big interest penalties.

  • High interest rate

  • No withdrawals

Junior ISA

You can save into a tax free Junior ISA on behalf of your child. You can pay in up to the Junior ISA allowance which is 4,080 in the 2016/17 tax year, and add more money in each new tax year.

These accounts usually pay a high interest rate and let you deposit money when it suits you.

When your child reaches 18 years old the account converts into an instant access ISA in their name.

  • High interest rate

  • Tax free

  • No access till 18th birthday

  • Limited to ISA restrictions

Stocks and shares

You can invest in the stock market on behalf of your child through investment products, such as a young person's savings plan or a stocks and shares Juniors ISA.

  • Potential for a high return

  • Money is at risk

Who can open them?

This depends on the provider and the savings account you choose, for example;

  • Children over 7 years old can open; instant access and fixed term bonds

  • Parents or guardians can open; Junior ISA, instant access, regular saver and fixed term bonds

  • Grandparents or family members can open; instant access, regular saver and fixed term bonds

Did you know?

If you open an account on behalf of your child, you will have control over the money until they reach adulthood.

There are also some non children based fixed term bonds available which can be opened by your child (some providers accept applications from children as young as 7).

These accounts cannot be opened by you on behalf of your child, but you can open them as joint accounts with your children.

Only a parent or guardian can open a stock and shares account on behalf of their child, but be warned that your money will be at risk and you may end up with less than you put in.

How can you open these accounts?

There are usually three ways to do this:

  • In a branch

  • Online

  • By post

If you apply online or by post it is likely you will need to have an existing account with the provider.

If you do not, you may be asked to visit your nearest branch to provide proof of identification before the account is opened. Identification might be needed for both yourself and your child.

Child's identification can be:

  • Birth certificate

  • Passport

  • Proof of address

Proof of address should be a utility bill or council tax bill in your name. The address on this bill needs to match both your details and the child's details on your application form.

You usually have to put in some money to start the account; this can vary from 1 to 10,000.

Are children's accounts taxed?

No, but that does not mean they are tax free.

Children have two types of allowance that let them earn interest on savings without paying tax each tax year.

  1. 1.

    Each child can earn 100 in savings interest from money given by a parent or legal guardian (For under 18s in the UK and under 16s in Scotland).

  2. 2.

    Each child can earn up to 1,000 in savings interest from money given by anyone, including parents, legal guardians, grandparents, relatives or friends.

When your child turns 16 years old they can start paying into an adult ISA in addition to paying into a Junior ISA.

This means they can benefit from their Junior ISA allowance (4,080) and their adult ISA allowance (15,240) until they turn 18.

Any interest earned from a Child Trust Fund or Junior ISA is already tax free, and is not included as part of either the 1,000 or the 100 savings allowance for children.

Can your child control the account?

No, unless they open an account solely in their name.

Most children's savings accounts can be opened in your child's sole name from the age of 7.

Having a children's savings account is the same as having an adult savings account, so there will be annual or monthly statements sent in the post updating you on the savings balance and interest rate each year.

If you choose for your child to manage their own account they are responsible for any administration that comes with the account, for example;

  • Signing for withdrawals

  • Signing to close the account

You will not be able to access any information on your child's account without their consent if it is in their sole name.

If you open a savings account on behalf of your child, the account automatically converts into their name when they turn 16. You will be notified of this change a few months before it happens.

Which account should you choose?

  • If you already have a lump sum of money and do not think you will need it in the foreseeable future, then look at putting the money into a fixed term bond in your child's name only, or a children's fixed term bond as they usually offer high interest rates.

  • If you do not have a large amount of money to put away for your child yet, but are happy to pay something each month you could open a children's regular savers account.

    Some accounts give you flexibility with how much you pay in each month, so if you are cannot pay in one month you will not be penalised.

  • If you want to start saving but are unsure whether you will need your money for emergencies then consider a children's instant access savings account.

    Although the interest rates may not be high, you can withdraw and deposit money when you like.