Setting money aside for your children is about more than just putting money into a piggy bank.
With the average cost to raise a child estimated at more than £220,000 until they reach age 18, saving money to manage life’s many milestones for your children can be beneficial.
A child savings account can help build a nest egg to cover costs such as school fees, university or their first car, while also teaching the younger generation about money matters.
There are different types of child savings accounts and some may even pay better rates than adult alternatives, albeit with certain restrictions.
Here are the best child savings accounts, and how to find them.
What makes a good child savings account?
As with any savings account, you’ll want to secure a decent rate for your child – but it’s also important to consider how much you can contribute and how easy it is to manage.
For example, can you only open the account in branch and can it be managed online? Is it possible to make withdrawals if needed?
Some providers may offer debit cards once a child is 11, which can be useful if you want to start teaching them about spending and financial responsibility.
When it comes to trying to find an account, many banks and building societies offer child savings accounts.
They can often be opened with as little as £1 by parents or guardians until the child is 18, but the child may also be able to manage the account once they are seven years old in some cases.
Parents can choose between easy access – where you can usually add or withdraw money freely – and regular saver accounts, which require deposits to be made on a regular basis.
Aimed at parents saving on behalf of children, these accounts often offer attractive rates but restrict how much you can actually deposit or how much interest is paid on to keep the total returns down.
Easy access accounts may limit how much you can save and earn interest on for your child overall, while a regular saver will have rules on how much can be contributed each month.
The rates on offer will either be fixed for a set period or variable, and can therefore change at any point.
It is important to keep an eye on the rate once a deal period ends as the rate could drop and it may be worth moving your money to seal a better return.
Watch out for minimum and maximum age requirements as this may affect when you can start saving for your child, and how long you can save for.
Watch out for tax
Children don’t usually have to pay tax on savings interest. This is because the amount saved and interest earned rarely exceeds the personal savings allowance (PSA) threshold.
But if a parent is contributing money into the account and it earns more than £100, this will go towards their own PSA.
If you are worried about this, another type of child savings account is the junior Isa (Jisa).
This has a separate annual £9,000 allowance to the adult Isa that can be put into a cash or stocks and shares Isa for children to access after the turn 18. All growth is tax-free – for both children and parents.
