A Guide To Children’s Savings Accounts

We all want to provide for our children’s future, and one way to do this is to set up a savings account in their name. 

Having a savings account set up enables parents and other family members to put money aside for a child and, hopefully, earn a nice amount of interest on that money.  There are several options for saving money for children, so read on to find out what’s available.  This should help you choose what type of account best suits your particular circumstances and preferences.

Junior ISA

Every child born on or after 3rd January 2011 or before 1st September 2002 is entitled to save or invest up to £3,600 (cash or shares) per tax year in a Junior ISA, an account which can be withdrawn from once the child is 18.  The interest is tax free and the account becomes a normal (adult) ISA upon the child reaching 18, and the money already deposited in it remains tax free.  You don’t have to pay in a regular amount, or a set amount each year.  You may wish to retain control of the funds, for example to ensure your child spends them in a way you’re happy with, and if this is the case a Junior ISA is not for you and you should save for the child using your own ISA allowance instead.  Those born outside the eligibility dates should use the Child Trust Fund, which is the product the Junior ISA was brought in to replace.

Normal Savings Account

A non-ISA savings account will still be tax free for most children (because they are unlikely to meet the earnings threshold required to pay tax), so you should still consider this type of account either if you want to pay more than the Junior ISA limit in, or if you find an account with a better rate than the ISA.  The downside is, once the child starts earning, they would lose the tax free interest that would have been retained had the money been in an ISA.  There are many different savings accounts available.  You can often choose between accounts which allow withdrawals at any time, ones which are locked for a period of time, or accounts which allow flexible deposits or fixed regular deposits.  

National Savings & Investments Bonus Bonds or Premium Bonds

NS&I Children’s Bonus Bonds are a secure and tax free way to invest a lump sum in a child’s name.  A bonus is awarded every five years that the money remains invested and it can be withdrawn when the child is 21.  The interest paid on these bonds is often lower than that paid on other savings accounts.  Premium Bonds can also be bought for children and, while they generate no interest, they have a chance of winning prizes in a monthly draw.

Stakeholder Pensions

You might not realise it but a pension can be set up in a child’s name and added to by friends and relatives at any time.  These pensions benefit from tax relief at a rate of 20%.

Shop around between different account providers to compare rates, and always seek professional financial advice before making any investment or opening a savings account.