Compare Children’s Bank Accounts

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Children’s bank accounts are now offered by dozens of banks since saving has become quite an important and valued habit today which most parents are eager to teach their children at a young age.

Selecting the right type of bank for this type of account is not very difficult. You would only have to do some research and compare children’s bank accounts before you make any decision.

Always select a bank which has a branch situated close to your house. Your child might be interested in visiting the bank from time to time so the locality of the account is an important aspect to consider.

Also, it is always better to go for an account which has a lower amount for opening the account and does not require any type of maintenance fees. You would need to ensure whether or not any fees are charged for the accounts which are not active for a specific period of time.

Do read all the terms and conditions and all the details before you go ahead and get an account with a bank. Consider a bank which offers a higher rate of interest since the child would be encouraged to save more.

If you are unable to find a bank in your locality which offers children’s bank accounts you can also consider getting an account with a credit union or an online bank account. Online banking is also very useful these days since most people prefer to use it because of the convenience that it provides. Get all the information you can and compare children’s bank accounts based on the factors mentioned above before making a decision.

Even for children it is possible to earn about 6% on top savings. However, several people still have their savings in low interest paying accounts which deprive them of the savings as well as any chance of learning the lesson that money can also work in your favour.

This guide to some of the top interest paying savings accounts for children will provide you all the necessary details about savings, tax for kids, getting freebies and using tax free allowance for children to your advantage.

This guide includes:

• Teaching children to save
• Will children have to pay tax?
• Using tax free allowance for kids

Best buys for child savings:

• The top 6% regular saver top 5 year 4.25% fix
• Top 3% Easy Access
• Top freebies on children’s account

Teaching children to save

The simple lesson that all parents should teach young children is that they should put their cash in a bank so that it will grow. As children get older, there is another important lesson that should be taught to them- the job of a bank is to make money and our job is to keep cash with us.

Although this may seem to be a very tough message for kids, it is crucial. Banks would always want people to put their money in a bank, not stressing on the point that the bank in which you would deposit your cash also counts. Given below are a few tips to teach children about savings.

• Difference between real banks and piggy banks

There is a simple way to make children understand about the difference here. You can make children understand that when they put their money in their piggy bank, it would simply sit there. However, when cash is deposited in an actual bank, they would be earning money on it. The amount that you would earn is interest. The higher interest rate on the savings and the longer that you keep your cash in the bank, the higher would be the amount that you will earn. For example, if the rate of interest is 10% it means that the bank would be paying 10p for each pound that you deposit there.

• Select an account together

It is recommended that you check all the accounts together with your kids. Explain the advantages and the disadvantages of each type of account and pick the right account. Visit the local building society and bank and allow your child to inquire about opening an account. Compare the deal with some of the best ones that are listed here.

• Talk about grabbing freebies

You should also explain to the kids that several banks will try and tempt clients through freebies but in most cases these accounts would be the ones on which the interest would not be great. Select an account for the interest that it offers, discuss opening different accounts with the minimum required balance only to enjoy the freebies.

• Teaching them to monitor interest rates

If you have been thinking about a variable rate or easy account, allow your child to be in charge of checking interest earned each month to see if the bank is still paying a good rate and if not, move it to somewhere else.

• Would it be safe?

This is a very interesting discussion for children. The piggy bank would be kept at home where it can be seen everyday, though there is a chance that it might be stolen. However, money in the bank cannot be seen but it would still be safe and out earn interest. The only risk here is if the bank would collapse. Even if the bank does collapse, if the account is UK regulated, the money would be protected by the government up to GBP 85,000 for each person. Money in the bank is definitely safe.

• Defer pocket money element

An easy trick is to defer pocket money element to show them the extra rewards that they would earn from the savings. If, for example, the pocket money for your child is 3 pounds, provide them one for element for saving and another one for spending. Let your child know that you would be providing them an extra at the end of each year for each pound they save as the reward. There are several great places where you can find more information about giving pocket money as the pay.

Would children have to pay tax on their savings?

The common myth that most people believe is that children would not have to pay taxes on their savings. However, this is not true. Children would be taxed just the same way as adults. This means that that each child in the tax year of 2010-2011 will be able to earn GBP 6475 through investments, savings or salary tax free. The only difference is that most children do not use up all of their allowance and so the interest on their savings is mostly tax free.

If you assume that your child would not earn any more than the tax free limit amount the interest that would be paid out without tax being deducted automatically by filling Inland Revenue Form which would be provided by the bank. If you have overpaid already, you will also have to fill up a R40 form in order to get it back. There is a special provision that any interest that would be earned on the money that has been provided to children specifically by parents would only be tax free up to an interest amount of GBP 100 per parent. If your child earns any more than that, the entire amount would be taxed at the rate of the parent.

Best Buy for children’s regular savings

The regular savings account will require that you put a minimum amount of cash away every month. In return of the regular deposit, the bank pays a significantly higher interest amount. If you do miss out depositing the minimum amount for a month or withdraw cash then you would lose that rate in most cases. You should only consider the account if you are quite sure that you would be able to deposit the required amount each month for the time period determined. Read a Regular Savings guide in order to learn more about how these accounts work and the advantages and disadvantages that you must keep in mind.

Regular Saver Bank of Scotland/Halifax 6% AER

The regular savings account for children from Bank of Scotland or Halifax pays an AER of 6% which is quite impressive. However, there are a few very strict conditions. You will have to deposit an amount between GBP 10 and 100 each month. If you withdraw the amount or miss a payment for one month, the account would be closed and you would only be able to get interest of 1.05% for the entire period. The 6% interest rate will last for only a year and the maximum amount that you will be able to pay is GBP 1200. What this means is that you can have an average balance of GBP 600 which is not really a large amount but is still higher than other places.

The money would be then transferred to the Halifax Save4it account after the completion of a year so you will have to ensure that you continue to monitor the rate. If the rate is not high you may want to shift somewhere else.  However, a major benefit is that any adult at all can open a single account in the trust of any child under the age of 16. You can get as many of these 6% accounts as you want.

Norwich and P’borough Regular Saver Family 5% AER

This particular account is not exclusively an account for children. It is an account for adults with kids up to age 16. However, since the interest rate is high, it is well worth mentioning here so since it has been designed so that you can save for your children. However, you should know that you would be taxed at the rate. This particular saving account pays a fixed rate of 5% when you save up to an amount of GBP 250 each month for a full year. The interest rate will drop down to 2% if you miss out on a payment for a single month or if you withdraw more than once. The rate would then be variable after the completion of the first year. The account can also be opened through post, branch or phone and can be operated online. The account would be in the name of an adult.

Principality Regular Saver for Children 4.5% AER

The regular saver from Principality for children pays an interest rate of fixed 4.5% if you deposit an amount between GBP 10 and 150 each month for a full year. Here, the terms and conditions are the same as the Halifax account. You would not be able to withdraw the cash or miss any payments.

If you do, the account would pay only 09% and would be turned to a standard account for children. After the completion of a year, the account will again revert back to a low interest paying account for children so it is best to switch your savings to a higher paying account. The account can be opened through post or branches. The account can be opened by children on their own if they are over 14 years of age. If not, the account will have to be opened in the child’s name by adults. An R85 form will also have to be filled so that the interest can be received without the tax.

Best Buy Fixed savings for children

Most of the savings accounts for children will be variable. What this means is that the interest rate will change as per the base rate of Bank of England and also when providers would change competitive stance. Some of the accounts have recently been hit hard as their interest rates have declined.

The fixed savings accounts are a better alternative since they would provide you a guaranteed interest rate for a determined period. However, you would not be able to withdraw any money from the account during the time. These accounts would be suitable only for those who would be happy to deposit their cash and then forget about it for the duration of the term. For several people this may be a problem. However, this is exactly what most parents would want for a children’s account. However, you should also know that if you deposit the cash in a fixed account and in the event that the interest rates in UK rise, you would no longer have any advantage.

Clydesdale and Yorkshire Bank 4.25% AER

If you have a Clydesdale or Yorkshire bank anywhere near you, which is quite possible since there are 340 branches through the country, you can open a savings bond for your child which pays an interest of 4.25% for a period of 5 years. The bonds are for children under the age of 16 and the minimum deposit amount is GBP 50 while the maximum is GBP 250,000. You would only be able to make a single deposit. The account may only be operated and controlled by parents or a guardian, who must also be present to sign the R85 form to receive tax free interest.

Bank of Scotland/ Halifax 4.25% AER

The Bank of Scotland or Halifax offers an account for 11 year old children with a fixed rate of 3.3% for 2 years, for 3 years the rate is 3.8% and for 4 years the rate is 4.05%. For 5 years the highest rate is 4.25%. The minimum balance required for the account is GBP 500. You would also need variable web saver for the account that pays almost 0.25%. However, you will only need to deposit GBP 10 each month. The account may be opened in the name of the child but it is highly likely that an adult would be needed for the ID checks.  

Northern Rock- AER 3.75%

Parents who are looking for a fixed amount for a short time then Northern Rock fixed bond rate is great since it pays an interest of 3.75%. You will be able to open an account with an amount of just 1 pound and would be able to save maximum GBP 20,000. However, if you have withdrawn money from the account once you would not be able to deposit once again. You can open the account through a branch or the post by a guardian or a parent.

Best buy Easy Access saving accounts for children

With the easy access accounts your children would be able to take the money out when needed. However, the rate is variable so you would need to keep an eye on it. If the rate drops down you should move your deposit to another bank. Kids would not be able to open these accounts since you would have to be 16 years old in order to have an account.

Northern Rock AER 3%

Northern Rock is one of the best variable rate accounts that pays an interest of 3% with a deposit of up to GBP 10,000. The account can be opened only through a branch and is for children under the age of 16. The account can be opened in the name of children with an adult as the trustee. R85 form should be filled to receive the gross interest.

Bank of Scotland/Halifax AER 2.6%

Since the account is mainly for adults, the Bank of Scotland or Halifax pays an interest of 2.6% without any bonus that is offered for children over the age of 11. One time withdrawal can be made without a penalty. If you withdraw more than once you would lose interest for 30 days on the amount that has been withdrawn. You would need regular access that should be avoided. The account can be opened on the name of children but an adult would also be needed for fraud and ID checks. Since this is an account mainly for adult you will have to ensure that the R85 form would have to be filled out to enjoy interest free tax. Halifax offers savings of GBP 50 although the protection would be spread through the entire group.

Bank of Scotland/ Halifax AER 1.05%

Bank of Scotland or Halifax is a good choice if you want online access to the account. The instant access account pays an interest of 1.05% starting from 1 pound. You will be able to apply for the account through the phone or a branch.

The smart account from Nationwide pays an interest of 0.75% starting from 1 pound. The account is branch based but can be accessed online or through phone by anyone over the age of 11. The account can be opened for a child up to the age of 16 along with an adult. The children over the age of 7 will be able to open the account on their own. The interest rates for the account are not really great so it would be best to compare them with the other adult account options.

Local building societies

You should also check the local building society that often pay quite good rates. Check if there are any offers for the children of existing customers in the area.

Top savings freebies for children

Banks are quite smart. Banks know that there are quite a lot of people who stick to the bank that they have an account with from childhood. Several banks offer free calculators and piggy banks as a cheap way to attract customers. Unless you are simply putting a small amount of cash, the value of freebie will outweigh everything else so it would be better to focus on the interest rate that you will get. However, once you have set up an account with a top paying bank it would be a great idea to teach kids about banking disloyalty. Children can open various different accounts with the minimum balance to take benefit of freebies.

Current Children’s Freebies
Bank/Society	Account Name	Gifts/Incentives
C&G	Young Investor	Alarm Clock and Moneybox
Co-Op	Bonus Account	Educational gifts from Born Free Foundation
Earl Shilton BS	Early Saver	Piggy Bank and free give aways
Furness BS	Young Savers	Piggy Bank and birthday card
Halifax / BoS	Save4it	Calculator and coin bank
Hanley Economic BS	Young Savers	Moneybox
Holmesdale BS	Young Saver	Savings box or Ducti Wallet or £15 gift card
Leek United BS	Humphrey Club	Free entry offers to Chester Zoo
Lloyds TSB	Young Saver	Stationary Pack
Market Harborough BS	Kool Kidz	Rory the Lion moneybox
Nationwide BS	Smart	Money off vouchers on activities/days out
Principality BS	Children’s	Dylan the Dragon moneybox
Santander	Kids Flexible Saver	Free wall-chart
Shepshed BS	Star	Ltd ed. model van or teddy + b’day card
Vernon BS	Sure Start	Vernon Bear moneybox
Please note some building societies require you to be a local resident  Last updated: July 2010

 

Using tax free children’s allowance

It may sound a little callous to say that you should use children tax very efficiently but your children would be better off if you are. When you save money in the name of your child it would mean that it is tax free and would get you a high interest rate. It is quite possible that you can have an account for your child for the pocket money and can use another one for higher deposits.

The implications of tax

If the money is your child’s he/she would be able to earn GBP 6475 as interest before they would need to pay tax for it. However, do not assume that you will be able to dunk fortunes in the name of your child. If your child earns any more than GBP 100 in a year as interest, specifically through money that has been given by each step parent or parent, then the income would be taxed at the rate of the parents.

What this means in practical term is that you can put GBP 6600 in an account that pays 3% without having to pay any tax since this will generate under 100 pounds each month. This particular rule will only apply to the parents and not to friends, uncles, grandparents or any other adult. They will be able to given any amount they like to your children as a gift and it would not fall under the limit of 100 pounds. The only other implication with cash gifts is the possibility of inheritance tax in case the donor passes away in seven years.

Remembering who the money belongs to

Parents should remember that the money belongs to their children and is in their name. However, if you are worried that they would spend the money that you deposit in their name to buy Xbox, sweets or ring tones, you will nothing much to worry about. There are several accounts that will allow you to have full control of the money. In most cases, the banks will require that the child will have to be at least 7 years of age before the account can be opened by the child. However, it is best to check all the specifics since it may be different for different cases. A guardian or a parent would be required for opening the account for children under the age of 7.

Parents can also act as the signatory for children who are older till they are 16 years of age. The signatory will be able to withdraw and manage the cash without the approval of the child. You will also have to note that several accounts will have many terms and conditions that state that the money will have to be used for the child’s benefit. However, this will have several different definitions.