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What you need to know about setting up a savings account for a child

Children’s savings accounts are much like savings accounts for adults – but they pay more interest and have a few more restrictions. If you are thinking about setting up a little nest egg for your child, it’s always best to do your research and compare accounts to find the best deal for them.

But what options are out there if you want to start saving for your children? And what are the benefits and downsides? We’re here to break it down for you.

What types of account are there?

Much like standard savings accounts, children’s savings accounts have a variety of options which determine what sort of interest rate they can achieve and how easily how easily your child can access the money.

Children’s monthly savers – Monthly savers, or regular savers, are accounts where you are required to deposit a minimum amount each month, typically between £10 and £100. These tend to offer the best interest rates because your child’s savings will grow slowly as a result of regular deposits, compared to big injections of money. Basically, saving this way caps the amount of interest a bank is required to pay out, meaning they are more inclined to be generous with the interest rate, knowing it won’t cost them a huge amount in the long run. These are good accounts if you are looking to put a bit aside for your child each month, and don’t need immediate access. While they are more flexible than fixed-rate bonds – which we will cover in a moment – monthly savers typically have some sort of restrictions on how many withdrawals your child can make.

Children’s easy access accounts – These accounts offer flexibility. Like it says in the name, your child can easily access the money if they need to. This can be a good place to save up pocket money if your child is too young for a current account, or just somewhere to keep their nest egg if you think the money may need to be accessed sooner rather than later. The main downside of an account like this is that the interest rates tend to be lower and are often variable, meaning that they can go up or down at any time.

Children’s fixed-rate bonds – These accounts tie up your child’s money for a specific term, typically between one and five years. The idea is that if you give up access to the money, you can achieve a higher rate of interest. However, currently there is not that much choice available in children’s fixed-rate bonds. As a result, there are more competitive rates to be found in the regular savers or easy access accounts.

Junior ISAs – ISAs offer a tax-free way of saving for your child. Junior ISAs allow them to save up to £4,368 (based on 2019-20 figures) tax-free a year. However, most children don’t pay tax on their savings anyway. This tax year, tax would only be payable on a child’s savings account if it earns more than £18,500 – which is made up of the same £12,500 personal allowance afforded to adults, a £5,000 savings ‘starter rate’ and a £1,000 personal savings allowance.

How do you open an account?

The process of how to open your child’s savings account will largely depend on the type of account you have selected. However, as a general rule, parents can open a savings account with just £1 for any child up to the age of 18. If you are a grandparent, you are still able to open an account for them as long as you have the correct documentation, such as the child’s birth certificate.

If the child is under seven, then a parent or grandparent would need to act as a trustee of the account. Once the child is over seven, they can operate their savings account themselves, but that depends on the type of account you have selected. Sometimes parents or grandparents will continue to act as trustees on the account right up until the child turns 18. 

What else do you need to know?

Some accounts have age restrictions. You’ll find some will allow you to set up a savings account right from the child’s birth, while others will have a minimum age requirement before the account can be opened. Some may also require a parent or guardian to act as trustee on the account.

Also, some of the best accounts out there are only available if the child’s parent or guardian has a current account with the bank in question. 

How much your child can manage their account will also vary depending on what type of savings product you choose. Some accounts will operate only online, while others will give your child a savings book that they can use in branch. For accounts designed for older children, they may be given a cash card with which to make withdrawals.

Finally, once your child reaches the age of 11, they can open a current account. So this may be something to consider, especially as some children’s current accounts also pay a decent rate of interest.

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