Young savers who open a Halifax Kids' Regular Saver account are no longer able to secure a 6% interest rate following the bank's decision to chop the rate to 4%.

Halifax's reduction of its Kids' Regular Saver interest rate for new customers came into effect on 7 June – but at 4% the Halifax product remains one of the top regular savings offerings available.

Our guide provides the full lowdown on the best children's savings accounts.

How does this impact existing Kids' Regular Saver customers?

If you opened a Kids' Regular Saver account with Halifax before 7 June then you'll continue to receive the 6% interest rate on your savings for the remainder of the account's 12-month term.

Unfortunately for existing customers, Halifax has confirmed to us that it treats the renewal of a 12-month term as a new account, meaning that everyone who signed up to the Kids' Regular Saver before 7 June will see their 6% interest rate drop to 4% a year after opening the account.

How does the Kids' Regular Saver work?

It's for children aged up to 15 and unlike some regular savings accounts, Halifax's Kids' Regular Saver doesn't require you to put money away each month and there's no penalty if you miss a pay-in.

The 4% interest rate is fixed for a year, although you can't make withdrawals during that period – so if your child's going to need the cash, it's best to look for a different account.

You can open the kids' account online or in a Halifax branch (it can't be opened in Bank of Scotland branches). Once the account is open it can only be accessed in branch, though, and the maximum deposit in a year is £1,200, so look elsewhere if you need to save more.

After a year the cash is transferred to a Halifax Young Saver account, which pays a 2.25% interest rate.

How do kids' savings accounts work?

There's a common myth that children don't pay tax on their savings – unfortunately that's not true. In fact, they're taxed in exactly the same way as adults.

Most children don't have jobs or earned income, however. And for the 2016/17 tax year, if they've no income they can earn up to £17,000 from savings without paying tax on it (that's the £11,000 personal allowance + £5,000 starting savings allowance + the new £1,000 personal savings allowance, or PSA).

Even if they do have income, and even if it means they're a taxpayer on it, the PSA, which launched on 6 April 2016, means if they're basic-rate taxpayers, they can earn £1,000 of savings interest tax-free.

Plus the other PSA benefit is all savings interest is now paid tax-free, so the old system where special forms needed to be signed for children to receive interest gross (tax-free) has gone. 

But there is one fly in the ointment – if money is given by a parent or step-parent and the interest is over £100/year the whole thing is taxed like it's the parent's cash.

Why has Halifax chopped the interest rate on its Kids' Regular Saver?

A Halifax spokesperson told us: "We regularly review our savings range and make changes in line with the market".

The move to slash the kids' savings interest rate by a third comes hot on the heels of the bank's decision to cut the interest rate of its Help to Buy ISA from 4% to 2.5% – which was done to allow Halifax to "align with the rest of the market".

What are the best value kids' savings accounts currently available?

Other than the Halifax Kids' Regular Saver, we believe the following children's regular savings accounts are currently the best available:

  • The Saffron Building Society's Children's Regular Saver (maximum age 15) pays 4% interest and allows withdrawals from the account. You can save between £5 and £100 each month.
  • The Nationwide FlexOne Regular Saver is for older children (aged 11 to 17) and pays a 3.5% interest rate. This account's good if you can save regularly, want a decent rate, but also want the ability to operate the account online.
  • The Barclays Children's Regular Saver pays an interest rate of 3.5%, but is a good option if you don't have a Halifax branch near you and want to bank with a big brand. The rate drops to 1.51% for a month if you make a withdrawal.