Children’s savings accounts

Thinking about setting up a savings account for your child? This can be a great way to teach them about money and the rewards of saving, as well as how interest works. Plus, it could mean they get to enjoy a lump sum when they come of age. Here’s what you need to know about children’s savings accounts.

Thinking about setting up a savings account for your child? This can be a great way to teach them about money and the rewards of saving, as well as how interest works. Plus, it could mean they get to enjoy a lump sum when they come of age. Here’s what you need to know about children’s savings accounts.

Anelda Knoesen
From the Money team
5
minute read
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Posted 30 SEPTEMBER 2021

What are the best savings accounts for children? 

While adult savings accounts still aren’t offering especially generous interest rates, kids’ savings accounts are faring better. Some are offering up to 3.5% – right now, these are some of the best rates on the market. We don’t offer comparisons on kids’ savings accounts, but you can find out more about the savings accounts we do compare here.

How do children’s savings accounts work? 

Children’s savings accounts work in much the same way as adult savings accounts. Some involve tying up your child’s money for a set period of time – usually between one and three years, although sometimes longer. Others offer you easy access and other perks, such as a debit card.

How do I find the best savings account for my child? 

When it comes to finding the best savings account for your child, it pays to shop around. Not only do different banks offer different interest rates, but they also offer different terms and conditions. For instance, some accounts won’t let you save more than £100 a month. Others will only give you interest on deposits up to a certain amount – the first £2,000 you deposit, for example.

Can I get a bank account for my child? 

Yes, in the UK you can open an account for any child with just a £1 deposit. If you want to open a bank account in your child’s name, you can do so from the age of seven. And once your child turns 11, they can have their own current account. Different banks have different rules though, so it’s always worth checking.

Children’s easy-access savings accounts 

When considering which children’s bank account to go for, one thing to think about is how often you’ll want to access the money. It may be that the accounts offering the best interest rates don’t let you touch your money. 

With an easy-access savings account, you can withdraw funds whenever you want. Some accounts will give your child a debit card, so they can spend as they choose. Obviously, this isn’t always an advantage! 

There are clear benefits to easy-access accounts, but you may find the interest rates offered simply aren’t as good.

Children’s fixed-rate savings accounts 

A fixed-rate savings account means that you can’t touch the money you deposit for a certain length of time – possibly up to five years. 

These accounts often, but don’t always, offer better interest rates. They may penalise you if you try to withdraw your money before the fixed-rate term is up. 

Before opening a fixed-rate account, it’s worth doing your research to see if you can find an easy-access account that offers the same interest rate. It’s also worth reading the small print before signing up to any account, as you may find the terms don’t work for you.

Junior ISAs 

Junior ISAs let you save up to £9,000 (for the tax year 2021/22) without having to pay tax. The money is locked away until your child turns 18, when it effectively becomes an adult ISA and they can have access to it. 

This can be a good option if your child comes into a large amount of money, such as an inheritance. But you may find it too restrictive for lower deposits. You may also find easy-access accounts that offer just-as-good interest rates – again, it’s worth shopping around.

How are my child’s savings taxed 

The vast majority of children won’t pay tax on their savings. That’s because, like adults, children have their own personal allowance.

But if you give them money, which they receive more than £100 in interest on, you’ll need to tell HMRC. You’ll also have to let HMRC know if your child has an income over and above their personal allowance.

But as we say, this isn’t something most children will have to worry about.

What are Child Trust Funds? 

Was your child born between 1 September 2002 and 2 January 2011? If so, they’re eligible for the Government’s Child Trust Fund scheme.

This is a long-term tax-free savings account for children. You can deposit up to £9,000 per year for your child, and they can take it out once they turn 18. 

Since there’s no tax to pay, it’s a good way of saving up for university, training or travel. Unfortunately, the scheme has now closed, but if your child missed the window, they can open a Junior ISA instead.

What to think about when choosing a kids’ savings account 

Before you choose a savings account for your child, be sure to consider the following: 

  • Interest rates
    The most obvious thing to think about is the interest rate. What return will you get on your savings? At the moment, interest rates are historically low – lower than inflation – which can mean it’s better to put your money somewhere other than the bank.
  • Having said that, there are some good interest rates on children’s savings accounts – around 3% or more – but in some cases you’ll find the better the interest rates, the more restrictive the terms and conditions are.
  • Access 
    How important is it to you that your child can freely deposit and withdraw money? Can relatives deposit money in the account on birthdays, Christmas, etc
  • Notice
    How much notice do you have to give if you want to withdraw money? Some accounts may make you wait three months for your funds. This might not be a problem, but if you can foresee a situation where you might need the money at short notice, you may want to look for a different account.
  • Regular savings
    Some accounts may ask that you make regular monthly deposits. This may not work for you if you only planned to put away the children’s Christmas and birthday money.

Frequently asked questions

Can children operate their own savings account?

Children in the UK need to be seven or over to operate their own savings account. You can set up an account for a child younger than that, but it will need to be controlled by you.

Who can access my child’s savings?

As your child’s parent or guardian, it’s usually only you who’ll have access to any funds in the account. This changes when your child turns 18 and can control the account themselves.

Can I give my child a lump sum without paying tax?

If you want to give your child’s savings a major boost, you can give them up to £3,000 in any one year without having to pay tax on it.

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