Childrens Accounts Explained
Teaching children how to look after their money at an early age will prove invaluable
to them in later life – not to mention provide them with a nest egg for their first
home or car.
First, though, you need to decide between the various options open to parents and
other adults saving for children. Are you looking for an account into which they
can deposit Christmas and birthday money and access from time to time, or you do
want a longer-term savings vehicle to invest for their future?
Children’s accounts are nearly always pitched at a slightly higher level of interest
than adult ones, so you should be able to find an attractive deal. However, the
interest rates and returns on offer vary widely so it is vital to shop around.
Standard
savings accounts
Teaching children how to look after their money at an early age will prove invaluable
to them in later life
Most banks and building societies offer savings accounts aimed specifically at children.
Many allow easy access and unlimited withdrawals, although some may require notice,
say 30 or 60 days before a withdrawal is made. Both notice and easy access products
are ideal if the main purpose of the account, is to encourage a child to get into
the habit of saving money they receive for birthdays and Christmas.
The best rates of interest tend to be on regular saver deals. These require money
to be deposited on a monthly basis making them popular choices for god-parents and
family members who want to save on behalf of a child. The minimum deposit is often
as little as £10 a month, while the maximum tends to be about £100.
Interest rates on children’s savings accounts vary significantly. Click
here
to see how current rates compare.
In most cases the parent or guardian of the child in question will operate the account
– usually until the child reaches the age of 16.
Children have the same tax allowances as adults. The current entitlement allows
them to earn £5,435* before having to pay tax. However, given that most children
will not earn more than that, and therefore won’t be taxpayers, they can have their
savings interest paid gross by completing an R85 form.
Remember though that if a parent is paying into an account in their child’s name
and it generates more than £100 a year in interest, the interest will be treated
as the parent’s and taxed accordingly.
Remember though that if a parent is paying into an account in their child’s name
and it generates more than £100 a year in interest, the interest will be treated
as the parent’s and taxed accordingly. The £100 rule, as it is known, applies only
to parents, so there is no need to worry if you are a grandparent or other friend
or family member and are saving for a child.
* Correct for 2008-2009 tax-year.
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