Opening a savings account for your children is a great way to help children understand the value of money. Savings accounts that offer interest on the balance will help your child understand how money can work for them. It also gives relatives an easy way to give your child money, unlike cash it adds to their balance and opens the door to teaching them about saving up for a larger purchase.
Learning As They Save
Giving a child a savings account is a great way of educating them to manage their own finances when they are older. Setting up a standing order for pocket money rather than offering cash can give them an incentive to save for bigger things that they want. A bank account also lets them experience a level of independence that is beneficial to their development.
If you feel your children are not yet old enough to have their own savings account, you can manage their savings for them and help them build up a lump sum for their future savings accounts.
The Mechanics Of A Childs Savings Account
Most banks and building societies offer children’s accounts, and in most respects, they are very similar to the adult versions. Most of them are simple cash accounts that offer a rate of interest on any savings they contain.
£1 is all it takes to open an account for any child up to the age of 18. If your child is over 7 years old they can operate the account themselves, depositing and withdrawing their own funds.
Choosing A Childs Savings Account
Children’s bank accounts are either instant access, which is as the name suggests and your child can withdraw money as they wish. The other type offered is a regular savings account which is designed to encourage them into the habit of making regular savings deposits. These accounts often offer a slightly higher rate of interest with limits on the amounts and times money can be withdrawn. Some of these accounts require regular deposits to maintain a higher rate of interest.
A Free Gift
Marketing being what it is, children’s savings accounts often come with a gift or incentive for your child. But be wary of such accounts as the interest rates they offer can be lower than others. You could always open both, so your child gets their free gift, but uses the account with the highest interest rate for their savings.
Taxation
Children are given a Personal Allowance for Income Tax. For the tax year 2022 to 2023, the amount is set at £12,570. Any interest that they earn below this figure is tax-free.
There are no limits to the amount of money you can give to a child, although parents should be aware if they deposit funds that accrue over £100 a year in interest that this money will be taxed as if the parent earned it. It is only parents that need to abide by this rule, grandparents, other relatives and friends do not need to account for their deposits in the same way.
The Best Choice Of Account For Your Child
A look at a comparison website is a great start when looking for a savings account, but be aware not all comparison sites return the same answers. So try a few and make your final choice for your children’s accounts personally once you have assessed the options.
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