Top Children's Savings
Teach your kids to save at up to 4.5% interest
While interest rates for grown-up savers have been dropping, children can still earn up to 4.5% on their savings – yet many have cash in accounts that pay dismal amounts, depriving them not only of interest, but the lesson that your money can work for you. This is a guide to the top-paying children's accounts, including how to use their tax-free allowance for your gain.
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Tips on teaching kids to save and other need-to-knows
The simple money lesson for younger children is obvious – put your cash in the bank and it'll grow. But as they get older there's another lesson to be learned – a bank's job is to make money from you, our job is to try to keep our cash.
So here are some top tips for helping kids learn and understand about saving and everything else you need to know about kids' savings.
Here's a handy simple explanation: "Put your cash in a piggybank 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 pay you. If the interest is 10%, that means they pay you 10p a year for every £1 you save with them."
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.
Plus, don't let them be swayed by cute toy freebies – explain that many banks try to tempt you in, 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.
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.
It's an interesting discussion to have with children. There's a balance here. A piggybank 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, which is as safe as we can hope for. See our Safe Savings guide for more.
One easy trick is to defer an element of pocket money to show the extra reward from saving. 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.
However, most children don't have jobs or earned income. And for the 2019/20 tax year, if they've no income they can earn up to £18,500 from savings without paying tax on it (that's the £12,500 personal allowance + £5,000 starting savings allowance + the £1,000 personal savings allowance).
Even if they do have income to pay tax on, the personal savings allowance means basic-rate taxpayers can earn £1,000 of savings interest tax-free.
Yet there is one fly in the ointment...
If money is given by a parent or step-parent (not grandparents etc) and the interest earned on it is over £100/year from non-ISA savings, the whole thing is taxed like it's the parent's cash.
The £100 allowance is on a 'per parent' basis, rather than a 'per child' basis. The aim is to stop parents using their kids' tax-free allowance for an extra allowance.
Once the child earns more than £100 per parent, the whole lot is taxed at the parent's tax rate. But even then, if the parent is within their personal savings allowance and the child's savings don't take them over, it'd still be tax-free.
However, if the child goes over the £100 limit and the parent is over the PSA, their savings would be taxable, in which case saving it in a junior ISA would be a tax benefit, as then it's tax-free.
Whether you should get a junior ISA depends on two things – if your kids pay tax now (almost all don't), and if you want to lock the cash away, or retain more control over it.
If your kids don't pay income tax (child prodigies watch out!) then they'll be able to earn £18,500 in savings interest before having to pay tax on it, meaning that a junior ISA isn't really necessary.
But if they'll have high levels of savings once they turn 18, a junior ISA could be a good plan, as these convert to full cash ISAs when the child turns 18, meaning they remain permanently tax-free.
Junior ISAs lock cash away until the child turns 18 – at which point it's their money. With the accounts in this guide, most allow access at any time, giving you more control.
"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 you often save 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.
But the personal savings allowance (PSA) has made this less of an issue. This is because, as we've said above, it allows basic-rate taxpayers to earn £1,000 in interest each year without paying tax on it (£500 for higher-rate payers, nothing for additional-raters). Though it's still worth considering if you're close to maxing out your PSA.
If it's their own money, children can earn the same £18,500 a year in interest as adults before it gets taxed. However, don't assume you can dunk fortunes in your kid's name.
As we've explained, if a child generates more than £100 in interest over the course of a year, from money specifically given by each parent (or step-parent) (so £200 for a couple with a child), this income falls under that parent's PSA. And if they've used their allowance up, it'll be taxed at their rate.
In practical terms this means you could put up to £4,422 in the 4.5% top-paying children's account (£2,211 per parent), and it wouldn't be taxed, as that would generate about £99.50 each. Just to clarify, this doesn't mean £4,422 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 £4,368 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 £20,000 and he gave mine the same...?" Good thought, but no cigar. If HM Revenue & Customs spots you, you're in trouble.
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 100 apps, a Nintendo Switch 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 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.
Top kids' regular savings accounts
These accounts let you save up to £100 a month, usually for a fixed term of a year – so are good for small sums. They often pay high rates of interest, but tend to have withdrawal restrictions. For a more detailed explanation of how the interest works and the pros and cons, read our full adults' Regular Savings guide. Or take a look at the top payers below.
The Halifax Kids' Monthly Saver is the top payer offering 4.5% AER interest fixed for a year on £10-£100/mth, but it doesn't allow any withdrawals during the term – if you want to access your cash early, you'll have to close the account. If you do close it, you'll still earn interest accrued up to that point.
A Halifax easy-access Kids' Saver account, which currently pays 2% AER, will be opened at the same time. After 12 months, the money in your Monthly Saver will be transferred to that. While your Monthly Saver will stay open and you can start saving in it for another year, there's no guarantee the rate'll still be at 4.5%.
Rate: 4.5% AER fixed for 12mths
Min/max deposit: £10/£100 a month (no penalty for skipping a month)
Access: Open online or in branch/manage online, in branch or by phone
Withdrawals allowed during term: No
Min/max age to open: 0/15
Savings protection: Shared with Bank of Scotland, (some) AA Savings, Saga and Birmingham Midshires
The Saffron BS children's regular saver pays 4% AER fixed for a year and you can save up to £100/mth. It allows withdrawals, but you'll need to operate the account by post unless you live near a Saffron branch (in Herts, Essex and Suffolk). After 12 months, the account turns into a maturity easy-access account, paying just 0.25% interest, so remember to move your cash then.
The Barclays children's regular saver pays 3.5% AER fixed for a year on up to £100/mth. The rate drops to 1.51% for a month if you make a withdrawal, so try to keep these to a minimum. After 12 months the account is converted into an instant saver account, currently paying 2.02% AER.
Rate: 3.5% AER fixed for 12mths
Min/max deposit: £5/£100 a month (no penalty for skipping a month)
How to open/access: Open in branch/manage in branch, or online and phone if you have a Barclays current account
Withdrawals allowed during term: Yes, but rate drops to 1.51% AER for the month
Min/max age to open: 0/16
Savings protection: Full
Top children's easy-access accounts
With easy-access accounts, you add money at will and can usually withdraw it just as easily, making these accounts good for bigger lump sums. But rates can change – so it's important to keep an eye on your account and switch if there's a better deal. It's also worth checking local building societies, which can sometimes have deals paying decent rates.
The HSBC MySavings account pays a decent 3% AER. It's ideal if you'll need access to your money as you can make unlimited withdrawals, but you only get the top rate on your first £3,000 – so if your child's a big saver, look at the Virgin Money account below.
Once your child reaches 11, they also get a MyAccount current account, which comes with a Visa debit card and can be managed online.
The Santander 123 Mini* current account pays a decent 3% AER if you have £300 to £2,000 in it. It's a good way to teach kids about managing money as they can operate the account themselves and from age 11 they can get a debit card or cash card, which can only be used at ATMs.
If you're a parent or guardian of a child under 13, you need to have a Santander current account and to open the account in trust for your child in a branch. You can then transfer the account over to them after their 11th birthday, which is when they'll get a card to use. If they're 13+, they need to open the account themselves online.
Rate: 3% AER variable on £300 to £2,000; 2% under £300; 1% under £200; nothing below £100 or above £2,000
Min/max deposit: £1/unlimited
How to open/access: Open in branch (online if aged 13-17)/manage online, by phone or in branch
Withdrawals: Yes, unlimited
Min/max age to open: 0 (13 to open themselves)/17
Savings protection: Full
Pays 3% on up to £5,000 a year if you've a Nationwide bank account, 2% otherwise, but limited withdrawals
If you've a child under 15, you can open a Nationwide Future Saver and save up to £5,000 a year. It pays 3% AER interest if you've a main Nationwide current account (see FAQs below), or 2% AER if you haven't.
However, it's questionable whether the account is truly easy access, as to earn the headline rate of interest you can only make one withdrawal per 'account year' – make more than this and you'll earn just 0.5% for the rest of the year.
Rate: 2% to 3% AER variable on up to £5,000/yr
Min/max deposit: £1/£5,000 a year
How to open/access: Open in branch/manage online or in branch
Withdrawals: One a year (for top rate)
Min/max age to open: 0/15
Savings protection: Full
A 'main current account' can be a Nationwide FlexOne, FlexStudent, FlexGraduate, FlexDirect or FlexPlus account.
If you don't have a 'main' Nationwide current account, you can earn the top rate if you've a FlexAccount and have been paying in £750+ for three months or have switched to a FlexAccount within the past four months.
Your child can hold the account until they're 18 years and six months old.
Nationwide counts an account year as a 12-month period beginning on the date you opened the account. So if you opened the account on 7 May, you could only make one withdrawal in each year from 7 May to the following 6 May.
The Young Saver from Virgin Money pays 2.25% on up to £25,000, you can open it with £1 and it allows unlimited withdrawals.
On the following 5 April from your child turning 16, the account will be transferred to an adult savings account likely to pay a much lower rate of interest – so plan ahead for this.
Top children's fixed-rate savings accounts
Fixed savings give a guaranteed rate for a set period, so offer certainty on your returns. However, you can't take your money out during the fixed term and, unusually, children's fixed savings pay less than their easy-access counterparts. Plus, the longer you fix for, the more risk you face if interest rates were to rise, as you wouldn't be able to ditch and switch to a better payer.
If you do want a fix, it's also worth checking the adult fixed-rate accounts, as some have no minimum age requirement, meaning you can open an account for your child with you as the trustee.
The Cambridge Building Society three-year fixed-rate children's account pays 2% AER on balances from £1,000 to £20,000, though you can only make one deposit and can't add to it.
Think carefully before getting a fixed account, as rates are higher on the accounts above – the only reason to open this is to lock the cash away.
The size of the saving
For calculating the interest on children's savings, we've assumed your child won't pay any tax on their interest.
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