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A guide to child saving plans

If you have young children, you can be forgiven for focusing all your energy on naps, nursery and bath time rather than fixed-rate bonds. But as your little ones grow older, the advantages of saving for your child’s future will soon become clear. In this guide, we’ll explain why setting up a children’s savings account is a good idea, and how you can go about it.

What is a children’s savings account?

Most banks and buildings societies offer children’s savings accounts, which allow your child to earn interest from cash deposited by a parent or legal guardian, grandparent, relatives or friends. The account is controlled by you, unless you open it in your child’s sole name, which is usually possible by the age of 7*.

The advantages of a child saving plan

Sure, your child’s future life as an adult might feel like a speck on the horizon, but if you start putting money aside now, it could really help them out in the future. These are some of the reasons you should consider opening a children’s savings account:

  • Support their future – your child can one day put the money towards a deposit on a home, a car, or university.
  • Earn more – you might get a better rate of interest compared to an adult’s savings account.
  • Let them learn – you can gradually introduce your child to the concept of money and savings: a good habit for life.

The best ways to save for your child’s future

Leaving aside the piggy bank, here are some of the best child saving plans.

Children’s savings accounts

Essentially, you have a choice between two main types of children’s savings accounts:

  1. Instant access accounts

    The advantage of an instant access account is that your child can deposit and withdraw money whenever they like. The downside is that the interest rates are less competitive compared to regular savings accounts.

    • A flexible way to save
    • Lower interest
  2. Regular savings accounts

    These accounts require monthly deposits and have maximum amounts you can save each month. In exchange, your child can benefit from higher rates of interest.

    • Better interest and easy access
    • Reduced interest if you withdraw early

Bonds

Savings bonds allow you to make bigger, long-term savings, but the catch is that you can’t touch the money during the term – say, 5 years – without paying a penalty. If you have high cash reserves and you want the best return, bonds are a good option.

  • High interest
  • Less flexibility

Junior ISAs

You can put money aside through a Junior ISA for your child, which for 2020-21, has a tax-free savings limit of £9,000. There are two types: a Cash Junior ISA, where you don’t pay tax on interest on the savings, and a Stocks and Shares Junior ISA, where the money is invested and no tax is paid on capital growth or dividends**.

  • Tax free savings
  • Only available on 18th birthday**

Child Trust Fund

Children born between 1st September 2002 and 2nd January 2011 were eligible for a Child Trust Fund (CTF). New applications into the CTF were closed on 2nd January 2011. You can transfer money from a CTF to a Junior ISA, or your child can access the money when they reach age 18.

Are children’s accounts taxed?

Usually, there is no tax owed on children’s savings accounts. After all, children don’t normally have jobs or earned income. However, you should inform HMRC if your child receives more than £100 in interest from money given by you***. .

What is the best saving plan for a child?

It’s never too early to start saving for your child’s future, but how do you know which account to choose? Much will depend on your financial situation…

Fixed term bonds offer high interest rates if you’re able to leave money untouched for years, but you’ll need to feel confident you have enough savings for a rainy day.

If you want flexibility and you’re not entirely sure how much you can give each month, a Child’s Regular Saver allows you to manage your deposits according to your needs, without paying extra charges.

Finally, if you'd like access right away, an instant access savings account lets you withdraw whenever you like, though you will earn less in interest.

Discover our children’s savings accounts and plan for the future today.

* Money.co.uk
** GOV.UK
*** GOV.UK
Money Saving Expert


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