How to choose the best savings account for your child
Opening a savings account can be a great way to get kids into the habit of saving. Where’s best to start?
Opening a UK savings account for your child can be a great way to invest for their future and get kids into the habit of saving from a young age.
But with many different providers and types of saver account on offer it can be tricky at times to know which one is the best to choose.
This guide explains how children’s savings accounts work, who can open them and gives you information on everything from how much you can save, age requirements and how tax is applied.
What is a children’s savings account?
A children’s savings account is a type of savings account designed for children up to the age of 18. It can be opened by a parent, guardian or grandparent or – when they are old enough – by the child themselves and allows them to save money and earn interest.
How do children’s savings accounts work?
Child savings accounts work in a similar way to any other savings account – you pay money in and get interest on your balance in return.
While you can set up a savings account for a child of any age up to 18, for the account to be in the child’s name they must be aged seven or over. You can usually open a savings account with just a pound.
As with ordinary savings accounts there are different types of children savings accounts in the UK, such as easy access bank accounts, regular saver accounts and fixed rate accounts.
One main difference between a child’s savings account and a savings account for adults is there’s usually no tax to pay on the interest earned.
You only have to inform Revenue and Customs if a child receives more than £100 in interest in any tax year, from money given by a parent.
What are the different types of junior saving accounts?
Children’s savings accounts come in different types to suit different ways of saving. Such as:
Easy access
Easy access savings accounts allow you or your child to deposit and withdraw money whenever you need to. They’re a good option for your child to put away pocket money or birthday cash that they then might want to withdraw and spend at short notice.
Notice account
Like notice accounts for adults, a notice children’s savings account means having to wait (such as one or three months, for example) to access the money in the account. They tend to pay higher interest than easy access accounts.
Fixed rate accounts
With a fixed rate children’s savings account, you lock the cash up for a fixed term chosen at the outset, typically between one and five years. There’ll be a fixed rate of interest paid on your deposit. Rates are often higher than you might get with an easy access or notice account.
Regular savings account
A regular savings account requires you to deposit a minimum amount each month, typically from £10 to £20, for a period of 12 months. They tend to pay even better interest rates than fixed rate accounts – but you can’t access the money during the 12-month term, and you often need to find a new account after this period.
Junior ISAs / Child Trust Funds (CTFs)
Junior ISAs and Child Trust Funds are both types of tax-free child saving’s accounts. If you’re looking to open a JISA for your child, you can invest up to £9,000 tax-free for the year 2022/23, with the money being unavailable to access until your child turns 18.
How do I choose the best savings account for my child?
The best savings account for your child will depend on how you want to manage the money and what level of access you want.
The first thing to consider is the interest rate. Generally, the higher the better, but keep an eye on how long any introductory rate periods last because the rate may drop significantly afterwards.
The interest rate isn’t the only consideration. If you want to encourage your child to pay in regularly, with their pocket money, for example, then a regular saver could be ideal.
If they are saving up for a big purchase over a year or more away, a fixed rate account - where they understand what the return will be in one year for example - could be the right option.
If you’re happy the money will be inaccessible until they turn 18 - and you are keen to try to earn the biggest return possible, a Junior ISA is worth considering.
Conversely, if you’ll need the money quickly, an easy access account will allow this, while still helping to encourage the savings habit.
How is a children’s savings account different from a standard savings account?
A children’s savings account doesn’t vary greatly from an adult or normal savings account.
The main difference is access. While an adult controls their own savings account, access to a children’s account will depend on the child’s age and the terms of the provider. Generally, the older the child, the more control they are given over their finances.
Children’s savings accounts may at times offer better rates of interest than regular savings accounts. Banks and building societies like to encourage customers from a young age, so can make rates attractive, hoping they will stay with them into adulthood.
Will my child’s savings be taxed?
Children are liable for income tax just like everyone else. But most little ones never pay a tax bill because they never earn more than the tax free allowance – £12,570 in the 2022/23 tax year.
In addition, children also get the personal savings allowance each year – which is an extra £1,000 in savings interest free of tax per year (for non taxpayers).
A word of warning, though. If the money in the child’s account is given by the parent and it generates more than £100 of interest a year, then it is taxed as if it were the parent’s own.
If you think you could fall foul of the £100 rule, you might want to consider a Junior ISA (where interest and returns are always earned free of tax) if your child is eligible.
Can I make withdrawals from a children’s savings account?
When you open a children’s savings account for a child, the account is in their name, which means that the child legally owns the money.
While anybody can pay money into a children’s bank account, parents aren’t allowed to make withdrawals from a child’s savings account and use this money for their own ends.
Withdrawals should only be used for things that benefit the child.
Given a parent or guardian is often needed to open a children’s savings account and may continue to help manage the account as a trustee, this doesn’t mean you can’t ever make withdrawals. If in any doubt, contact the account provider.
What happens when my child turns 18 years old?
When the child turns 18 years old, most children’s savings accounts will be converted to a regular instant access savings account. You should be contacted by the provider in advance and be told the new terms that will apply to the account.
If the savings account is a Junior ISA, it will become an adult ISA when they reach 18 and the tax-free benefits are retained as long as the holder doesn't close down the account.
How much can I deposit into a children’s savings account?
There may be an unlimited amount that can be deposited into a children’s savings account, but you should check the individual account terms to see if there are any restrictions. A Junior ISA is slightly different, and your child can invest up to £9,000 per year tax-free.
Are my child’s savings safe?
If your child’s savings account is held in their name, the FSCS (Financial Services Compensation Scheme) can protect savings up to £85,000 in total across all accounts they hold with the same banking group.
FSCS can protect both accounts in the child’s name, or where they’re listed as the beneficial owner (if money is held on their behalf under a trust arrangement.)
Do bear in mind that if the money is held in a JISA account or a child trust fund, the FSCS compensation will need to be paid into another ISA rather than being cashed.
Should I get a debit card for my child?
Most children’s bank accounts will offer a debit card that will allow the child to make purchases in shops, online and withdraw cash from an ATM.
Your child shouldn’t be able to spend more money they have because overdrafts aren’t available on accounts for under 16s. Payments will usually be declined if there isn’t enough money in the child’s bank account.
Depending on the age of the child, parental controls may be put in place to prevent the child from spending more than a certain amount on their debit card each day.
A parent and guardian will also need to give permission for an account holder under the age of 16 to have a debit card.
What are the alternatives to a junior savings account?
If you’re weighing up the right option for your child’s savings, there are alternatives to children’s savings accounts available:
Children’s current account
A current account for your child can help encourage money management, with optional restrictions you can put in place to make sure they don’t over-spend.
Junior ISAs and Child Trust Funds
Junior ISAs and Child Trust Funds are both types of tax-free child saving’s accounts. If you’re looking to open a JISA for your child, you can invest up to £9,000 tax-free for the year 2022/23, with the money being unavailable to access until your child turns 18.
Lifetime ISA
If your child is over 18, a Lifetime ISA (LISA) is there to help first-time buyers get on the property ladder. There are cash LISA and stocks and shares LISA options. The maximum you or your child can put into the account is £4,000 a year, and the government will contribute £1 for every £4 that is saved.
Other useful guides
We have a broad range of useful savings guides, including:
Choosing a high interest account Everything you need to know about ISAs
What is National Savings and Investments?
Compare savings accounts with MoneySuperMarket
MoneySuperMarket doesn’t currently offer children’s savings accounts – apart from stocks and shares Junior ISAs.
But if you’re looking for a savings account we can help. We provide a choice from leading providers for easy access, notice and fixed rate accounts, and cash ISAs.
You can compare interest rates, length or term, minimum and maximum deposits and any other terms and conditions before making your choice.