A guide to choosing a children’s savings account
When it comes to picking a savings accounts for your child, it might be tempting to simply scan the best buy tables and pick the one offering the highest rate of interest.
That makes sense and is what you should be doing with your own savings. Keeping an eye on your account, researching rates, moving your money elsewhere if you spot a better deal.
But when it comes to your child’s account, there may be more to think about.
It all depends on your motivation for opening the account. If it’s simply to provide them with a nest-egg for later in life then interest rate will be the key factor – more below on the best accounts.
But if you want to use the savings account as a way of teaching your child about the value of setting money aside regularly, then the incentives or gifts lenders offer are worth considering.
Adult savers are often urged to avoid gimmicks used by lenders to entice new customers. But for children, they could actually be beneficial and could get kids excited about saving.
And according to Anna Bowes, director of website SavingsChampion.co.uk, that is more important than rates. “If children get used to saving we could get them hooked. The very act of putting funds away each month even in a piggy bank could be inspiring,” she says.
Of course, there are other types of account – other than those offering the best free gifts – that could be suitable for you and your child.
If teaching the outcome of saving is your first priority, then an easy access account is the best option. These accounts do not require a notice period so your child can get instant access to their cash when they’ve built up enough for the toy or book or video game they want. Rates on these types of account tend to be a bit lower.
If your main aim is to get your child into the habit of saving little (or a lot!) and often, a regular savings account might be the best option. These tend to offer higher rates of interest than their easy access peers but will have strict criteria such as requiring a deposit every month and limiting withdrawals.
Which account to pick
If incentives or free gifts are your number one focus, there are a few accounts to consider and some pay pretty good rates of interest too.
Saffron Building Society’s Children’s Regular Saver comes with a savings chart with stickers to track how much your child has saved. The account requires a payment of £5-£100 a month but in return it pays 4%.
The Melton Building Society gives children who open an account in branch a pocket wildlife guide, wildflower seeds, a note book, a bag and a limited edition passbook wallet. It currently pays 3%.
Principality Building Society’s Dylan’s Regular Saving Bond means your child will have to tie up their money for three years. Kids get a free Dylan the Dragon Moneybox and the bond pays 3%.
If you want to go down the instant access route, HSBC MySavings is currently paying 2.96% and is available for anyone aged 7 to 17. The minimum amount to open an account is £10.
Nationwide Building Society’s Smart Limited Access is available to children from 7 to 18 and the minimum amount is £1. It is paying 3% (2.5% from 1 July 2016) for one withdrawal a year. Additional withdrawals result in the rate dropping to 0.75%.
For regular savers, Halifax’s Kids’ Regular Saver pays 6% as long as you pay in £10 to £100 a month. Be warned though, there’s no access to the money in the account for 12 months.
Saffron Building Society’s Children’s Regular Saver mentioned in the incentives section above is another regular savings account, requiring a payment of between £5 and £100 every month. It pays 4% and becomes ‘easy access’ after 12 months.
If your only motivation is to build up a nest egg for your child that they can’t access until the age of 18, you may want to think about opening a Junior cash or Junior stocks and shares ISA. You can save or invest up to £4,080 in this tax year into a Junior ISA. It’s worth remembering that on your child’s 18th birthday, the money in the Junior ISA becomes theirs and is moved into an ISA.
Cash Junior ISAs are savings accounts which keep your money safe. You can open one at a bank or building society and they pay a defined rate of interest. Coventry Building Society and Nationwide Building Society both currently pay a market leading 3.25%.
According to Andrew Hagger of moneycomms.co.uk, £40 a month in a Junior ISA paying 3.25% will earn you £11,700 after 18 years.
Junior stocks and shares ISAs are riskier as the returns you get will depend on how well your investments – either funds or shares – perform. This type of ISA is available from investment platforms such as Hargreaves Lansdown, Tilney Bestinvest, The Share Centre and Fidelity. For more see: Everything you need to know about Junior ISAs