How to save for children or grandchildren
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At a glance:
You can save for little ones with children’s savings accounts, Junior ISAs and bonds.
The earlier you save, the more interest you’ll build up.
Even a small amount every month could mean a tidy sum by the time the child is an adult.
How to save for children
The earlier you start saving for children, the more money they’ll receive when they reach adulthood. Saving for a child can begin at any age, even from birth.
Compound interest is a big reason why saving early can prove effective. This is where you earn extra interest on the money you’ve already saved.
For example, you pay £1000 into a children’s savings account. It earns £50 in interest in the first year. Even if you didn’t add any more money in, you’ll now be earning interest on £1050 for the next year. Over a long period, this can really add up.
What is a children’s savings account?
A children’s savings account is a type of account made specifically to save for a child.
They can be opened and managed by a parent, guardian or sometimes a grandparent, depending on the provider. A children’s account may also be opened by another relative, like an aunt or uncle. Make sure you check the terms of the account when opening one.
Money is paid into the account and earns interest over time. An adult will manage the account until the child is a teenager (aged 18 for YBS on sale children’s accounts). Other children’s savings accounts might mature at age 16, or 21.
Features of a children’s savings account
Save regularly or make one-off deposits.
Interest paid every year (or sometimes every month).
Limits on if money can be taken out of the account, and by who.
Interest earned in a children’s savings account isn’t tax-free.
Who can save in children’s account?
Anyone with account details can usually add money into the children's savings account, this is usually the parent, guardian or grandparent.
The account itself is held in the child’s name.
To open an account, the provider will typically need proof of identity for both the adult and the child. This might include:
A birth certificate for the child
Photo identification for the adult
Proof of address
What are the main ways to save for a child?
Children’s savings accounts
Children’s savings accounts are one of the most common ways to save for a child. They are usually straightforward and allow money to be saved in the child’s name, often with the flexibility to add funds over time.
Benefits:
Easy to understand and set up.
You can save as much or as little as you can afford.
Savings belong to the child.
Limitations:
Interest rates may vary.
Some accounts restrict access or withdrawals.
The interest earned in a children’s savings account isn’t tax-free.
Junior ISAs
A Junior ISA (JISA) is a tax-efficient savings or investment account for children under 18.
All interest or investment growth is usually free from UK tax. Junior ISAs are the only type of children’s savings account that offers tax-free savings interest.
Money paid into a Junior ISA can’t be accessed until the child is 18, when the account becomes an adult ISA. There may be some exceptions that allow you to withdraw money from an Junior ISA.
Benefits:
You may not pay tax on interest or investment gains.
Long-term savings.
You can pay in up to £9,000 per tax year.
Limitations:
Money cannot usually be accessed until age 18.
Can’t pay in more than £9,000 per tax year.
Investments can go up or down.
Premium bonds
Premium Bonds are offered by the UK Government-backed provider NS&I. Instead of earning interest, savings are entered into a monthly prize draw to win tax-free money.
Benefits:
Backed by the UK Government.
Chance to win cash prizes instead of earning interest.
Prize money is tax-free.
Limitations:
No guaranteed return.
Some savers may receive no prizes.
Depends on luck rather than guaranteed interest.
What happens to a children’s savings account when the child is an adult?
When a child reaches adulthood, most children’s savings accounts change in some way:
Children’s savings accounts: These may convert into an adult savings account. The account holder gains control and can decide how to manage their money.
Junior ISAs: These become adult ISAs.
Premium Bonds: The bonds remain in the individual’s name, and they continue to be entered into prize draws.
The content on this page is for reference. It is not financial advice. For help with money issues, try MoneyHelper.
