Money Saving

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BANK ACCOUNT SAVING DEALS

Best children's savings - Teach your kids to save at up to 4% interest

Children can earn up to 4% in the top savings accounts - yet many have cash in accounts paying dismal amounts. That doesn't just deprive them of interest, but the chance to learn the valuable lesson that your money can work for you.

This is a full guide to the top-paying children's savings accounts, how tax for kids works, grabbing freebies and how to use their tax-free allowance for your gain.

Tips on teaching kids to save

The simple money lesson for younger children is obvious - put your cash in the bank and it'll grow. Yet as they get older there's another valuable lesson to be learned. A bank's job is to make money from you - our job is to try to keep our cash.

This may sound like a tough message to teach kids, but it's crucially important. The banks would like us to say "put your money in the bank", not "it's which bank you put your cash in that counts". So here's some top tips for helping kids learn and understand about saving.

Do children pay tax on savings?

There's a common myth that children don't pay tax - that's simply not true. In fact, they're taxed in exactly the same way as adults.

Yet most children don’t have jobs or earnt income. And for the 2016/17 tax year, if they've no income they can earn up to £17,000 from savings without paying tax on it (that's the£11,000 personal allowance + £5,000 starting savings allowance + the new £1,000 personal savings allowance (PSA)).

Even if they do have income, and even if it means they're a taxpayer on it, the personal savings allowance which launched on 6 April 2016 means if they're basic rate taxpayers, they can earn £1,000 of savings interest tax-free.

Plus the other PSA benefit is all savings interest is now paid tax-free, so the old system where special forms needed to be signed for children to receive interest gross (tax-free) has gone.

Yet there is one fly in the ointment...

If money is given by a parent or step-parent and the interest is over £100/year the whole thing is taxed like it's the parent's cash.

Money given to a child by each parent or step-parent (not grandparents, aunts, uncles etc) which generates more than £100/year in interest in normal (non-Junior ISA) savings will be paid at the parent's tax rate.

The £100 allowance is on a 'per parent' basis, rather than a 'per child' basis. The aim's to stop parents using their kids' tax-free allowance for an extra allowance.

Once the child earns more than this, the whole lot is taxed at the parent's tax rate. Yet even then if the parent is within their personal savings allowance and the child's savings don't take them over, then it'd still be tax free.

Yet if the child goes over the £100 limit and the parent is over the PSA then their savings would be taxable, in which case saving it in a Junior ISA would be a tax benefit, as then it's tax free.

Can a grandparent open an account for a grandchild living abroad, in the child's name?

Best Buys Children's regular savings

Regular savings accounts require you to put a minimum amount of money away each month. In return, they often pay much more interest - and at present, the top pick's interest smashes all other best buys.

If you miss a month or need to withdraw cash you'll often lose the rate, so only consider this if you're sure you'll be able to pay cash in during the time period. For a more detailed explanation of how the interest works and pros and cons, read the full adults' Regular Savings guide.

Earn 4% interest and make unlimited withdrawals

SAFFRON BS CHILDREN'S REGULAR SAVER

If you can agree with your child to put £5 or more aside most months, the Children's Regular Saver from Saffron BS pays 4% AER, and allows withdrawals from the account. You're also able to operate the account by post.

Need-to-knows

You can save any amount between £5 and £100 each month.
You don't have to pay in every month - there's no penalty if you miss a pay-in.
Children under seven must have an adult to operate the account for them.
At the end of the 12 months, the account will turn into a Maturity Easy Access account, paying just 0.5% interest.
Saffron BS has the full £75,000 UK savings safety guarantee.

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Earn 4% if your kid can save regularly

HALIFAX KIDS' REGULAR SAVER

The Halifax Kids' Regular Saver also pays 4% AER, fixed for a year but this account doesn't allow withdrawals. If your child's going to need the cash, then it's best to look for a different account.

Need-to-knows

You can open the account online or in a Halifax branch (it can't be opened in Bank of Scotland branches). Access once the account is open is in branch only.
The maximum deposit in a year is £1,200, so look elsewhere if you need to save more.
You don't have to pay in every month - there's no penalty if you miss a month.
The cash is transferred to a Halifax Young Saver account (see below) after a year.
Halifax shares its £75,000 UK savings safety guarantee with the rest of the HBoS group including Bank of Scotland, AA, Saga & BM Savings.

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Older children can earn 3.5% but have to get a linked current account

NATIONWIDE FLEXONE REGULAR SAVER

Older children aged 11 to 17 years old can open Nationwide's FlexOne Regular Saveraccount, which pays a 3.5% AER rate. This account's good if you can save regularly, want a decent rate, but also want the ability to operate the account online. To get this account, they'll also need the FlexOne current account as well.

Need-to-knows

You can add from £1-£100 each month.
You don't have to pay in every month - there's no penalty if you miss a pay-in.
You can withdraw as often as you like, and also replace the cash the same month, provided the total pay-in minus the withdrawals is £100 or less.
Interest on the savings account is paid annually on 31 December.
Nationwide has the full £75,000 UK savings safety guarantee.

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Also 3.5% interest BUT you can't make withdrawals

BARCLAYS CHILDREN'S REGULAR SAVER

The Children's Regular Saver from Barclays pays less than the Halifax and Saffron accounts above, but is a good option if you don't have a Halifax branch near you and want to bank with a big brand.

Need-to-knows

You can save any amount between £5 and £100 each month.
You don't have to pay in every month - there's no penalty if you miss a pay-in.
The rate drops to 1.51% for a month if you make a withdrawal, so try to keep these to a minimum.
The rate is fixed for 12 months - after this the account will be converted into an Instant Saver account, which probably won't pay as good a rate.
An adult must open the account for children aged under 16.
If you've a Barclays current account, you can access the account online or by phone on behalf of your child.
Barclays has the full £75,000 UK savings safety guarantee.

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Best BuysChildren's easy access savings

If you don't fancy the regular savers, or have filled them, next best is a choice between...

The top easy access children's savings accounts, where rates can change both with the Bank of England's base rate and as providers change their competitive stance, or...
The top fixed savings, which give a guaranteed rate for a set period, but you can't take your money out during that time. These can be great for certainty on your return, but are only suitable if you're happy to lock cash away for the entire term.

We've plumped for the top easy access deals next as rates are slightly better, but go with whichever suits you best. It's also worth checking local building societies, which can sometimes have deals paying decent rates.

Pays 3% on up to £3,000 and allows unlimited withdrawals

HSBC MYSAVINGS

The HSBC MySavings account pays a decent 3% AER, and is ideal if you'll need access to the money as you can make unlimited withdrawals. But you only get the top rate on the first £3,000 in the account, so if your child's a big saver, then look at the accounts below.

Need-to-knows

If your child's 7-17 they can open the account - under 16s need a parent/guardian with them.
While the child is under 11, the adult trustee's permission is needed to withdraw £50 or more.
Once the child reaches 11, they get a MyAccount, which comes with a Visa debit card.
If you save more than £3,000, then any amount above this gets just 0.5% interest.
If you're under 11, you need to apply and operate the account in branch or by phone. Once you reach 11, as part of the MyAccount, you will be able to operate it online.
You get a free moneybox (some get a sticker book too) when you open the account.
HSBC shares its £75,000 UK savings safety guarantee with First Direct.

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Pays 2.5% on up to £50,000 but limits withdrawals

NATIONWIDE SMART LIMITED ACCESS

If your child has lots of savings, Nationwide's Smart Limited Access account pays 2.5% AER on up to £50,000.

Its major drawback is that it only allows you to make one penalty-free withdrawal/year. Make any more and the rate drops, so if your child's likely to need frequent access, the other accounts in this guide may be better picks.

Need-to-knows

You're only able to make one penalty-free withdrawal per year. Make two or more and the rate drops to 0.75%.
You can operate the account online, but you'll need to go to a branch to open it (unless you're an existing Nationwide customer).
Kids aged seven or older can open the account in their sole name. However, if your child's aged under 16, then a parent or guardian can open the account on their behalf.
Nationwide has the full £75,000 UK savings safety guarantee.

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Pays 3% on £300 to £2,000 and those aged 11+ get a debit card

SANTANDER* 123 MINI CURRENT ACCOUNT

If you child is between 11 and 18 years old, they can open a Santander* 123 Mini Current Account. Like its grown-up current account counterpart (see Santander 123 in Best Bank Accounts for the adult version), it pays interest, giving 3% AER if you have £300 to £2,000 in it. It's a good way to teach your kids about managing money as they'll operate the account and can get either a cash or debit card to go with it.

Need-to-knows

As it's a current account, you can make unlimited withdrawals from it.
You can open the account online, by phone or in a branch.
You only get the 3% interest if you've £300-£2,000 in the account. If you've £200-£299 it's 2%, and for £100-£199 it's 1%. Rates apply to the entire balance.
You child must open and operate the account themselves - it can't be held in trust.
Santander has the full £75,000 UK savings safety guarantee.

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Rate: 3% AER variable if you've £300 to £2,000; 2% under £300; 1% under £200; nothing below £100 or above £2,000 | Min deposit: £1 | Max deposit: Unlimited | Access: Online, via the Santander app, phone or branch | Withdrawals allowed: Yes, unlimited | Min age to open it: 11 | Max age: 18

Earn 2.25% & allows unlimited withdrawals

HALIFAX/BANK OF SCOTLAND YOUNG SAVER

If you're looking for an easy access account with no monthly limits on the amount you pay in, the Halifax or Bank of Scotland Young Saver account pays 2.25% AER without any bonuses, and allows unlimited withdrawals.

Need-to-knows

You need to go into a Halifax or Bank of Scotland branch to open & operate the account.
You can make as many withdrawals as you like, there's no penalty.
Once the child reaches seven, they can have a cashcard to make their own withdrawals.
You can save more than £20,000 but only get 0.5% interest on any amount above that.
Interest's paid annually on the account's anniversary.
Halifax shares its £75,000 UK savings safety guarantee with the rest of the HBOS group including Bank of Scotland, AA, Saga & BM Savings.

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Best BuysExisting customer deals

The accounts below come with a big "but..." attached - a parent or guardian must also hold one of the same bank's current accounts. Fortunately, Lloyds has a decent, interest-paying current account on offer, but do check it's the right deal for you if you're switching. See Best Bank Accounts for more.

Get 2.25% on your child's account if you bank with Lloyds

LLOYDS BANK YOUNG SAVERS

Lloyds Bank current account customers can open the branch-access Young Saversaccount on behalf of a child, paying a decent rate of 2.25%.

If you're looking to switch to Lloyds, the Club Lloyds account is a top option, as it pays up to 4% interest on balances up to £5,000. If you're not looking to switch, then try theLloyds Classic Account - it's free to get and it doesn't have to be used as your main account.

Need-to-knows

You need to open the account on your child's behalf, and must remain in control of it until they reach 16.
Once your child's 16 years old, the account will convert to a Lloyds Easy Saver. The rate will likely be dire, so check it & then ditch and switch if so.
If you have the Club Lloyds account, you need to pay in £1,500/mth (£5 fee if you don't) and pay out two direct debits.
Lloyds Bank shares its £75,000 UK savings safety guarantee with Cheltenham & Gloucester.

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