What is the best way to save for your child?

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You can start to save for your child as soon as they are born. When they're old enough, you can teach them the principles of saving for the future, and how interest works on savings accounts. Here is how to pick the best way to save for children.

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Saving for children is a great gift, which can be used in the future to help them put a deposit for a house, pay for college or university, or pay for their wedding.

Saving for children is a great gift, which can be used in the future to help them put down a deposit for a house, pay for college or university, or pay for their wedding.

If you’re able to, it’s a good idea to start putting money aside for your child as soon as they are born.

You can save for your child's future in a number of ways and can choose from a standard child savings account, a regular savings account, or an investment in the stock market via an Individual Savings Account (ISA) Here is how to pick the best way to save for children

Make the most of your tax-free ISA allowance.

What is a children's savings account?

A children’s savings account is simply 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.

What do I need to know about saving for children?

  • You can open a savings account when your child is born

  • Most accounts allow you to open a kids' saving account with as little as £1

  • Your child can start to manage their savings account when they reach the age of 7

  • When you first open the account the name of the parent or guardian will be on the account as well as the child. When they are 18 the account can be transferred to their own name.

What are the best children’s savings accounts?

Saving for your children's future is an important part of financial planning.

There are a number of different children’s accounts to choose from. The best way to save money for kids is to pick an account which you and your child will be able to manage, is accessible and pays a reasonable rate of interest. 

The right one for you will depend on what best fits your financial circumstances and goals. 

It might be that you want to choose a children’s saving account with a bank or building society that has a branch near to where you live, or you might prefer to operate an online account.

Instant access savings - pros and cons

Instant or easy access savings accounts let you pay money in and take it out whenever you want, making them ideal if you want to top up every time you have some spare cash. The downside is they do not usually offer the most competitive interest rates.

Here are some of the advantages and disadvantages of an instant access savings account:

  • Withdraw funds at any time

  • Pay in money as and when you can

  • Lower interest rate

  • Your child may be tempted to spend what they’ve saved

Regular savings - pros and cons

Regular saver accounts require you to save a set amount each month. There will usually be a minimum and maximum limit, so you might have to pay in between £10 and £100 a month, for example. 

The advantage of these accounts is they can pay a higher interest rate. The downside is they usually only last for 12 months and you won’t be able to access the funds during that time.

  • Higher interest rates

  • The interest rate is usually fixed for 12 months

  • Encourage your child to save on a regular basis

  • You have to pay in every month – although some banks let you miss a monthly payment

  • You can’t usually access the funds during the 12-month term

  • You can’t pay in more sizeable deposits

Fixed term savings (bonds) - pros and cons

If you’re happy to lock away your child’s savings for up to 5 years, you can take advantage of higher savings rates with a fixed rate bond.

However, keep in mind you cannot make withdrawals during the term without paying large interest penalties.

  • More competitive interest rate

  • Interest rate is fixed, not variable (although this can work against you if external rates go up)

  • Penalty to make withdrawals

  • You can’t usually add to your child’s funds after the initial deposit

Junior ISA - pros and cons

You can also save into a tax-free Junior ISA on behalf of your child. You can pay in up to the Junior ISA allowance each tax year – this is £9,000 in the current tax year.

These accounts usually pay a competitive 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.

  • Competitive interest rate

  • Tax-free

  • You can add funds whenever required, providing it doesn’t exceed the Junior ISA allowance

  • No access till 18th birthday – although this can also be a benefit

  • Limited to ISA allowance restrictions

Compare our best junior ISAs

Stocks and shares – pros and cons

As well as cash savings, you can also invest in the stock market on behalf of your child through investment products. This could include a young person's investment plan or a stocks and shares junior ISA. This has the potential to offer a much higher return than cash savings, but there’s also a higher risk.

  • Potential for a high return

  • Plenty of time for your investments to grow

  • The value of your investment can go down as well as up

  • You may have to pay investment platform or management fees

Who can open a children’s savings account?

This depends on the provider and the savings account you choose:

  • Children over seven years old can open some instant-access and fixed-term bonds, depending on the bank

  • Parents or guardians can open junior ISAs, instant-access, regular-saver and fixed-term bonds for children

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

Did you know?

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

Some banks also offer standard fixed-rate bonds that can be opened by children as young as seven – providing their application is signed by a parent or guardian. 

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 stocks and shares account on behalf of their child. However, remember that while investing has the potential to provide bigger returns, your money will be at risk and subject to volatility.

Should you save in your name for your child?

No, children's savings accounts tend to offer higher interest rates and offer additional tax benefits which you may not qualify for in your own name.

How can you open children’s 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 can earn up to £100 in savings interest from money given to them by a parent or legal guardian (for under 18s in the UK and under 16s in Scotland). 

If a child earns more than £100 from money given by a parent, the interest is taxed as if it were the parent’s. This means if the amount is above the parent's own Personal Savings Allowance, they must pay tax on the total interest.

This limit does not apply to interest on money given by grandparents, relatives or friends.

Any interest earned from a Child Trust Fund or Junior ISA is already tax-free and is not included as part of savings allowance for children.

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 (£9,000) and their adult ISA allowance (£20,000) until they turn 18.

Earn interest tax free with a cash ISA.

Can your child control the account?

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

Many children's savings accounts can be opened solely in your child's name from the age of seven.

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 or 18, depending on the account. 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, consider opening a fixed-term bond in your child's name, or a children's fixed-term bond as they usually offer higher 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 in each month, a children's regular savers account could be the right option for you.

Some accounts give you flexibility with how much you pay in each month, so if you are unable to 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, 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.

Piggy Bank

Children love piggy banks because they can see their money build up. However, you obviously won’t get any interest paid, so it’s not a very efficient way to save. Piggy banks are best for when children are small, for collecting up spare change, and for extremely short-term circumstances like weekly pocket money. If your child loves their piggy bank, consider having a system where once a year, anything saved in it is transferred to an interest-paying account. You could even encourage your child to save some of their pocket money by saying you’ll match what’ in it at the end of the year.

NS&I Premium Bonds

Premium bonds can be a fun way to save because your children’s bonds are entered into a monthly prize draw where they can win between £25 and £1 million tax-free. However, wins are not guaranteed, and you need to be extremely lucky to beat most savings rates over time. The maximum number of bonds you can hold is £50,000.

NS&I Children Bonds

These are no longer available.

Children’s pensions

You can start a pension for your child to help make sure they are looked after when they retire, but be warned they won’t be able to touch the savings until they are 57. 

You can save up to £2,880 each year and the government will add £720. Investment returns are income-tax and capital gains tax free. When your child retires, they’ll have to pay income tax on pensions withdrawals, but they can take 25% as a tax-free lump sum.

Child Trust Fund Accounts

These were available for children born between 2002 and 2011 but have since been discontinued by the government. If you have an old CTF you can transfer it into a Child ISA.

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