Children can earn up to 6% in the top savings accounts - yet many have cash in accounts paying dismal amounts. That doesn't just deprive them of interest, but the chance to learn the valuable lesson that your money can work for you.
This is a full guide to the top-paying children's savings accounts, how tax for kids works, grabbing freebies and how to use their tax-free allowance for your gain.
Tips on teaching kids to save
The simple money lesson for younger children is obvious - put your cash in the bank and it'll grow. Yet as they get older there's another valuable lesson to be learned. A bank's job is to make money from you - our job is to try to keep our cash.
This may sound like a tough message to teach kids, but it's crucially important. The banks would like us to say "put your money in the bank", not "it's which bank you put your cash in that counts". So here's some top tips for helping kids learn and understand about saving.
Should your kids be getting a Junior ISA/Child Trust Fund instead?
It depends - mostly on whether your kids pay tax now (most don't), and whether they will save enough to pay tax on their savings when they're 18.
If you think they'll save more than £15,240 (the current ISA limit) in their first 18 years, then it's worth getting a Junior ISA, as these convert to full cash ISAs when the child turns 18.
The other consideration for whether you should choose a normal kids' savings account or a Junior ISA is how much you'll give them. Because if they'll earn more than £100 interest a year from money given from each parent, that cash will be taxed at your rate, unless it's in a tax-free Junior ISA.
Explain the difference between real banks and piggy banks
Here's a handy simple explanation: "Put your cash in a piggy bank and it sits there. But put it in a real bank and you're actually lending them your money - so they need to pay you for it.
"The amount you're paid is called interest. The higher the interest on savings and the longer you keep it with them, the more they are paying you. If the interest is 10%, that means they pay you 10p a year for every £1 you save with them."
Pick the account together - so they can help decide
Look through the best buys together, explaining accounts' pros and cons (if you're unsure, see Interest Rates For Beginners and make the decision together). Better still, go to your local bank or building society, get your child to ask for an account there and compare its deal with the best here.
Don't be swayed by cute toy freebies
Explain that many banks try to tempt you in with freebies, but often they're the ones that don't pay good interest. So pick an account for interest, then discuss opening other accounts with just the minimum balance to grab the freebies (see best freebies).
Get them to monitor the rate - so they're involved
If you go for an easy access or variable rate deal, put your child in charge of checking the interest every month to see if it's still paying a decent rate. Move it if not.
Help them pick an account where their savings are safe
It's an interesting discussion to have with children. There's a balance here. A piggy bank is kept at home where you can see it, though it can be stolen (don't say that if it'll scare them). Yet money in the bank is safe and earns interest, but there's a very slight risk the bank may collapse.
If it does, provided it's a UK-regulated account (all those listed below are) the money is protected up to £85,000 per person by the Government (falling to £75,000 on 1 January 2016), which is as safe as we can hope for. See the Safe Savings guide for more about how savings are protected.
Agree with them how much of their pocket money'll be saved
One easy trick is to defer an element of pocket money to show the extra reward from savings. For example, if their pocket money is £3, give them half for spending and half for saving. Then tell them for every pound they save, you'll give them an extra one at the end of the year as a reward. For more tips, see Martin's blog: Give pocket money as pay.
Check how old your child needs to be to open/operate their account
Unfortunately there’s no straight answer as banks aren’t consistent across their own accounts. For example, Barclays has at least four different children’s savings/current accounts, each open to different age ranges and each allowing children to open/control the account at different ages.
The same is true across all the banks – there’s no consistency.
Here’s a few examples just to show:
Skipton BS Leap account For 0-17 yrs. Child can open/operate if 8+. Needs an adult trustee to open/operate if under 8. Child cannot keep the account past the upper age limit. The money will be transferred and the account closed.
HSBC MySavings account For 7-17 yrs. Child can open/operate but needs an adult trustee to withdraw £50+ if under 11. Child cannot keep the account past the upper age limit. The money will be transferred and the account closed.
Barclayplus Children's account For 11-15 yrs. Child can open/operate. Child cannot keep the account past the upper age limit. The money will be transferred and the account closed.
Barclays Regular Saver account For 0-18 yrs. Adult (18+) must open and operate. Child can operate from 16+. Child cannot keep the account past the upper age limit. The money will be transferred and the account closed.
Nationwide FlexOne current account For 11-17 yrs. Child can open/operate. Once open, child can keep account until 23 yrs.
Don’t feel that you should let your child open or operate an account just because they are old enough to. While it’s a great way to teach your child cash management, only you can know when your child is ready for the responsibility.
If you need further help - or they want to read more
These tips are just the start. For more, see the Free Teen Cash Class PDF, Martin's MoneySaving tips for nine-year-olds blog (and ensuing discussion), the Things teens need to know about cash discussion and the full Financial Education Campaign section. You should also check you're with the best Child Trust Fund or Junior ISA.
Do children pay tax on savings?
There's a common myth that children don't pay tax - that's simply not true. In fact, they're taxed in exactly the same way as adults. Each child can, in the 2015-16 tax year, earn up to £10,600 tax-free from salary, savings or investments.
The difference is, unlike most adults, most children don't use up their allowance, so their savings interest is tax-free.
Assuming your child won't earn more than £10,600 (watch out child prodigies!), ensure any interest is paid without tax being automatically deducted by filling out HM Revenue & Customs' R85 form (the bank should give you one of these).
If you've already overpaid, you'll need to fill out an R40 form to get it back.
Special rules for money from parents
Any interest earned on money specifically given to them by a parent is only tax-free up to the first £100, per parent or step-parent, each year. If your child earns more than £100, the whole lot is taxed at the parent's rate.
If parents intend to save these levels of cash in a child's name, it's definitely worth considering Junior ISAs, Here, the interest is tax-free regardless - but make sure you're getting a top rate.
Is your child eligible for a Junior ISA or Child Trust Fund?
It's also worth looking at tax-free Junior ISAs or Child Trust Funds. Your child will be eligible for one or the other depending on when they were born. Although it's unlikely your child will have to pay tax, there are benefits to both options. See the Junior ISA and Child Trust Fund guides to see which your child is eligible for.
Can a grandparent open an account for a grandchild living abroad, in the child's name?
In theory, yes - HMRC says there's nothing legally stopping you. But in practice, many banks - including those detailed here - require the named account holder to have UK residency as part of their T&Cs, which will make it difficult.
Ultimately, you may want to keep the money in your name. If you're not a taxpayer, that shouldn't be a problem. Otherwise, it would be tax-free in a cash ISA - and it could stay there until you're ready to hand the cash over.
The only thing to watch for is inheritance tax, if you have substantial wealth. But assuming this isn't too large a sum of money, you should be able to give it away in the future without too many problems.
Best BuysChildren's regular savings
Regular savings accounts require you to put a minimum amount of money away each month. In return, they often pay much more interest - and at present, the top pick's interest smashes all other best buys.
If you miss a month or need to withdraw cash you'll often lose the rate, so only consider this if you're sure you'll be able to pay cash in during the time period. For a more detailed explanation of how the interest works and pros and cons, read the full adults' Regular Savings guide.
Earn 6% if your kid can save regularly
Halifax Kids' Regular Saver
If you can agree with your child to put £10 or more aside most months, the Halifax Kids' Regular Saver pays a whopping 6% AER, fixed for a year. However, this account doesn't allow withdrawals, so if your child's going to need the cash, then it's best to look for a different account.
- You need to go into a Halifax branch to open the account (it can't be opened in Bank of Scotland branches).
- The maximum deposit in a year is £1,200, so look elsewhere if you need to save more.
- You don't have to pay in every month - there's no penalty if you miss a month.
- The cash is transferred to a Halifax Young Saver account (see below) after a year.
- Halifax shares its £85,000 UK savings safety guarantee with the rest of the HBoS group including Bank of Scotland, AA, Saga & BM Savings.
Rate: 6% AER fixed for 12mths | Min deposit: £10/mth | Max deposit: £100/mth | Access: Halifax branches only | Missed payments allowed: Yes | Withdrawals allowed: No | Min age to open it: 0 | Max age: 15
Older children can earn 3.5% but have to get a linked current account
Nationwide FlexOne Regular Saver
Older children aged 11 to 17 years old can open Nationwide's FlexOne Regular Saver account, which pays a great 3.5% AER rate. This account's good if you can save regularly, want a decent rate, but also want the ability to make withdrawals too. To get this account, they'll also need to get the FlexOne current account as well.
- You can add from £1-£100 each month.
- You don't have to pay in every month - there's no penalty if you miss a pay-in.
- You can withdraw as often as you like, and also replace the cash the same month, provided the total pay-inminus the withdrawals is £100 or less.
- Interest on the savings account is paid annually on 31 December.
- Nationwide has the full £85,000 UK savings safety guarantee.
Rate: 3.5% AER variable | Min deposit: £1/mth | Max deposit: £100/mth | Access: Online or branch | Missed payments allowed: Yes | Withdrawals allowed: Yes, unlimited | Min age to open it: 11 | Max age: 17
How good is the current account? The FlexOne bank account has been designed for young adults and offers a nice specifically tailored perk – you (and one friend) can get 25% off at Vue cinemas for 12 months. You’ll earn 1% AER on cash in there up to £1,000, and you'll get either a cashcard or debit card to withdraw cash.
Both the current account and savings account can be opened online or in branches. You must be aged between 11 and 17 to open them, but once open you can keep the accounts until you're 23.
Once you turn 23, the regular savings account will automatically change into an instant access savings account (which is unlikely to match the 3.5% interest rate). You'll also need to upgrade your current account to an adult current account.
Also 3.5% interest BUT you can't make withdrawals
Barclays Children's Regular Saver
The Children's Regular Saver from Barclays pays less than the Halifax account above, but is a good option if you don't have a Halifax branch near you and don't want to operate the account online.
- You can save any amount between £5 and £100 each month.
- You don't have to pay in every month - there's no penalty if you miss a pay-in.
- The rate drops to 1.51% for a month if you make a withdrawal, so try to keep these to a minimum.
- An adult must open the account for children aged under 16.
- If you've a Barclays current account, you can access the account online or by phone on behalf of your child.
- Barclays has the full £85,000 UK savings safety guarantee.
Rate: 3.5% AER fixed for 12 months | Min deposit: £5/mth | Max deposit: £100/mth | Access: Branch only | Missed payments allowed: No | Withdrawals allowed: Yes, but rate drops | Min age to open it: 0 | Max age: 18
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Best BuysChildren's easy access savings
If you don't fancy the regular savers, or have filled them, next best is a choice between...
- The top easy access children's savings accounts, where rates can change both with the Bank of England's base rate and as providers change their competitive stance, or...
- The top fixed savings, which give a guaranteed rate for a set period, but you can't take your money out during that time. These can be great for certainty on your return, but are only suitable if you're happy to lock cash away for the entire term.
We've plumped for the top easy access deals next as rates are slightly better, but go with whichever suits you best. It's also worth checking local building societies, which can sometimes have deals paying decent rates.
Pays 3% BUT limits the number of withdrawals you can make
Nationwide Smart Limited Access
The Nationwide Smart Limited Access account pays 3% AER, and allows you to operate the account online. However, its major drawback is that it only allows you to make one penalty-free withdrawal/year. Make any more and the rate drops, so if your child's likely to need frequent access, the accounts below may be better picks.
- You're only able to make one penalty-free withdrawal per year. Make two or more and the rate drops to 0.75%
- You can operate the account online, but you'll need to go to a branch to open it (unless you're an existing Nationwide customer).
- Kids aged seven or older can open the account in their sole name. However, if your child's aged under 16, then a parent or guardian can open the account on their behalf.
- Nationwide has the full £85,000 UK savings safety guarantee.
Rate: 3% AER variable | Min deposit: £1 | Max deposit: £50,000 | Access: Online or branch | Withdrawals allowed: Yes, one penalty-free | Min age to open it: 0 | Max age: 18
Also pays 3% but you can't save more than £3,000
The HSBC MySavings account pays 3% AER, but it's got a much smaller maximum balance than the other accounts on this list - so if your child's a big saver, then look at the accounts above.
- If your child's aged 7 to 17 they can open this account, though under 16s need a parent or guardian with them.
- While the child is under 11, the adult trustee's permission is needed to withdraw £50 or more.
- Once the child reaches 11, they get a current account, MyAccount, which comes with a Visa debit card.
- If you save more than £3,000, then any amount above this gets just 0.5% interest.
- You need to apply in branch or by phone, but can operate it online.
- HSBC shares its £85,000 UK savings safety guarantee with First Direct.
Rate: 3% AER variable | Min deposit: £10 | Max deposit: £3,000 | Access: Online, phone or branch | Withdrawals allowed: One penalty-free | Min age to open it: 7 | Max age: 17
Earn 2.25% & allows unlimited withdrawals
Halifax/Bank of Scotland Young Saver
If you're looking for an easy access account with no monthly limits on the amount you pay in, the Halifax or Bank of Scotland Young Saver account pays 2.25% AER without any bonuses, and allows unlimited withdrawals.
- You need to go into a Halifax or Bank of Scotland branch to open & operate the account.
- You can make as many withdrawals as you like, there's no penalty.
- Once the child reaches seven, they can have a cashcard to make their own withdrawals.
- You can save more than £20,000 but only get 0.5% interest on any amount above that.
- Interest's paid annually on the account's anniversary.
- Halifax shares its £85,000 UK savings safety guarantee with the rest of the HBOS group including Bank of Scotland, AA, Saga & BM Savings.
Rate: 2.25% AER variable | Min deposit: £1 | Max deposit: £20,000 | Access: Branch only | Withdrawals allowed:Yes, unlimited | Min age to open it: 0 | Max age: 15
Earn 2.25% if you're happy to manage the account with a passbook
Skipton BS Leap Account
The Skipton BS Leap Account (issue 3) is another decent easy access account. It's operated in branch with a passbook, or by post. In addition, for every £20 saved in branches you'll receive a sticker to collect towards a choice of book, though don't pick the account solely based on this, as more interest's available in the accounts above.
- If your child's aged between zero and eight, you will need to open and operate this account on their behalf.
- Your child can operate this account on their own once they reach 8 years old.
- Skipton Building Society has the full £85,000 UK savings safety guarantee.
Rate: 2.25% AER variable | Min deposit: £1 | Max deposit: £50,000 | Access: Post or branch | Withdrawals allowed:Yes, unlimited | Min age to open it: 0 | Max age: 17
Best BuysExisting customer deals
The accounts below come with a big "but..." attached - a parent or guardian must also hold one of the same bank's current accounts. Fortunately, Lloyds has a decent, interest-paying current account on offer, but do check it's the right deal for you if you're switching. See Best Bank Accounts for more.
Get 2.25% on your child's account if you bank with Lloyds
Lloyds Bank Young Savers
Lloyds Bank current account customers can open the branch-access Young Savers account on behalf of a child, paying a decent rate of 2.25%. If you're looking to switch to Lloyds, the Club Lloyds* account is a top option, as it pays up to 4% interest on balances up to £5,000. If you're not looking to switch, then try the Lloyds Classic Account - it's free to get and it doesn't have to be used as your main account.
- You need to open the account on your child's behalf, and must remain in control of it until they reach 16.
- Once your child's 16 years old, the account will convert to a Lloyds Easy Saver. The rate will likely be dire, so check it & then ditch and switch if so.
- If you have the Club Lloyds account, you need to pay in £1,500/mth (£5 fee if you don't) and pay out two direct debits.
- Lloyds Bank shares its £85,000 UK savings safety guarantee with Cheltenham & Gloucester.
Rate: 2.25% AER variable | Min deposit: £1 | Max deposit: £20,000 | Access: Branch | Withdrawals allowed:Yes, unlimited | Min age to open it: 0 | Max age: 16
Best BuysChildren's fixed-rate savings
The longer you fix for, the more you are RISKING the fact that an unpredictable future means this could be a bad choice. If interest rates were to increase rapidly, you would lose the flexibility to ditch and switch to a better payer.
It's also worth checking the adult fixed rate accounts, as most have no minimum age requirement. So you can open an account for your child, with you as the trustee. Plus don't forget to register the account for gross interest.
Up to 2.9% if you're willing to lock it away
State Bank of India Jumbo Junior Fixed Deposit Account
The Jumbo Junior Fixed Deposit Account from the State Bank of India UK pays up to 2.9% AER, depending on what term you pick. However, think carefully before getting a fixed account, as rates are higher on most of the account above, so the only reason to open this is to lock the cash away.
- You can choose a fixed term from one to five years, with rates ranging from 1.5% AER to 2.9% AER.
- Your child must be no more than 15 when the account matures. So if a child is 14, only the one or two-year options would be available.
- You must open the account, but you can hold it in the child's name if you prefer.
- You can only make one deposit into the account, so it's worth marshalling your cash together before you open the account.
- You can open more than one account for your child, but can't exceed the maximum balance of £100,000 across the accounts.
- Withdrawals and early closures aren't permitted.
- State Bank of India has the full £85,000 UK savings safety guarantee.
Rate: 1 yr 1.5%, 2 yrs 2%, 3 yrs 2.35%, 4 yrs 2.6%, 5 yrs 2.9% | Min deposit: £1,000 | Max deposit: £100,000 | Access: Branch | Withdrawals allowed: None | Min age to open it: 0 | Max age: 15
Get a 2.5% children's bond from the Government's savings provider
The NS&I Children's Bond (issue 35) pays 2.5% AER for five years on balances from £25 to £3,000. It's a lower rate than the one offered by State Bank of India above, and also the easy access accounts, but a lot of people like to save with NS&I as it's a very safe, trusted brand.
- The account can be opened by parents, guardians or (great-) grandparents only, though once it's open, a parent or guardian must be in charge of it until the child reaches 16.
- You can cash the bond in early by closing it and paying the equivalent of 90 days' interest as a penalty.
- Any money held with National Savings & Investment is 100% protected as it's backed by the UK Government. Read more about savings safety.
Rate: 2.5% AER fixed for five years | Min deposit: £25 | Max deposit: £3,000 | Access: Online, phone or post | Withdrawals allowed: Yes, subject to a penalty | Min age to open it: 0 | Max age: 16
Check your local building society too
Local building societies often pay very decent rates too. Check for offers for existing customers' children or for those living in the local area.
For a full list of children's savings accounts use the MoneySupermarket* and Moneyfacts comparisons, in conjunction with the Savings Safety guide to examine the protection for any accounts. However, with these it's crucial you double-check the rates on the banks' own websites before applying, as these comparison tables are NOT continually updated.
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The top children's savings freebies
Banks aren't stupid beasts. They know many people stick with their childhood bank throughout their adult life. So doling out a piggy bank or calculator is a cheap way to bag 20, 30 or even 40 years of custom.
Therefore, unless you're only putting in a small amount of money - so the freebie value outweighs anything else - you'll do far better to focus on interest. But once you've set up the best-paying children's account, you can do your kids a great service by teaching them a bit of banking disloyalty.
There's nothing stopping a child opening a range of accounts with the minimum deposit, usually £1, and grabbing a freebie for each. Just make sure you keep track of them.
Current children's freebies
|Bank/society||Account name||Gifts or incentives|
|Co-op||Bonus Account||Educational gifts from Born Free Foundation|
|Earl Shilton BS||Early Saver||Piggy bank|
|Holmesdale BS||Young Saver||Free gift|
|NatWest||Young Saver||Piggy bank|
|Clydesdale Bank||Jump Start||Free gift|
|Mansfield BS||Young Saver||Piggy bank|
|Cumberland BS||Young Savers||Starter pack, incl calculator|
|Newbury BS||Young Savers||Welcome gift|
|Leeds BS||DinoSaver||Free gifts|
|Saffron BS||Ladybird Issue 5||Ladybird money box|
|Ulster Bank||Urfirst (0-11)||Hippo money box|
|First Trust Bank||Junior Saver||Piggy bank|
|Danske Bank||Junior Saver||Penguin money box|
|Please note some building societies require you to be a local resident.
Last updated: March 2015
Use your child's tax-free allowance
'Using your children tax-efficiently' sounds slightly callous. But if you are better off, so are your kids. Saving money in a child's name means it's tax-free, and often at a higher rate of interest. It's perfectly possible to have one account for your child to put their pocket money into, and another for any larger amounts.
Know the tax implications
If it's their own money, children can earn the same £10,600 a year in interest as adults before it gets taxed. However, don't assume you can dunk fortunes in your kid's name.
If a child generates more than £100 interest in the course of the year, from money specifically given by each parent (or step-parent), this income is taxed at that parent's tax rate. So that's £200 for a couple with a child.
In practical terms this means you could put up to £6,600 in the 3% top paying children's account (£3,300 per parent), and it wouldn't be taxed, as that would generate around £99 each. Just to clarify, this doesn't mean £6,600 every year; it's the interest generated from all cash given in this and previous years.
One way around this is with Junior ISAs, where £4,080 (in 2014/15) can be saved in the child's name and is free of tax regardless - read our full Junior ISA guide.
Also these rules only apply to parents, not grandparents, aunties, uncles or friends. They may all give your children as much as they like and, providing it's a genuine gift, it counts as the child's money without a £100 limit.
The only other tax implications of making cash gifts is the possible spectre of inheritance tax if the donor dies within seven years of making it.
A warning for bright sparks thinking: "If I gave my brother's kids £10,600 and he gave mine the same...?" Good thought, but no cigar. If HM Revenue and Customs spots you, you're in trouble.
Whose money is it anyway?
It's worth remembering if the money's in your child's name, it's your child's cash. Yet if you're worried that by putting £1,000 in their name they'll splash out on 52 ringtones, an Xbox and enough sweets to give a junior school a sugar rush, don't be. Many accounts will allow the adult to stay in control of the cash until the child turns 16. When they do, the cash is technically theirs to do with what they wish.
Most banks require a child to be at least seven before they can open an account for themselves, though they do all differ, so it's always worth checking the specifics. Under-sevens require a parent, guardian or grandparent to set up an account and act as signatory.
This method can also be selected for older children. If it is, then usually until they're 16 the signatory can still manage and withdraw the cash without the child's approval. Many accounts have terms and conditions stating withdrawn money must be used "for the benefit of the child," but of course, this encompasses a wide variety of definitions.