Martin Lewis reveals the best children's savings accounts
How do you earn big interest on ickle savings? There’s been a shake-up in children’s accounts as Nationwide, one of the major providers has revamped its offering. Plus many parents and grandparents who’ll be giving Christmas cash need to think now where it should go. So our Money Saving Expert Martin Lewis is here with his children’s savings masterclass for you little ones.
Everyone knows I’m a big fan of financial education for kids – not only in teaching them how to save, but importantly where to save to get the most from their money. So before we go through this, just a quick note, if they’re old enough, sit down with them, and pick the savings account together, running through the pros and cons of each. Turn it into a fun financial game.
Ok, so now on to the masterclass… there’s full details of all accounts in Martin’s full ‘Best Children's Savings’ guide.
Q. If you’re looking for somewhere to put children’s savings, where’s the best place?
A. On interest, the easy winner is the Halifax Kids’ Regular Saver (up to age 15), which pays 4.5% AER fixed for a year, though you can only pay in between £10 and £100 per month. You are allowed to miss a month, but can’t withdraw any money until the year’s up. You can open and access it online or in branch. After a year, the rate drops, so get your child to set a diary reminder and move their money to a better account when it does. If you need another Saffron Building Society is similar but pays 4% AER and you can make withdrawals from it, though you can only open and manage it in branch or by post.
Q. What if you’ve larger lump sums to put in?
A. Nationwide has just overhauled its children's savings products, launching a brand new Future Saver account, which has the best rate at 3.5% AER, but to get it the parent or guardian needs a Nationwide current account (not flex basic), if not the rate is 2.5% and then it is beatable. You can put in up to £5,000 a year, but can only make one penalty free withdrawal a year, and your child needs to be under 15 to get it.
If you don’t have the Nationwide current account, then the HSBC MySavings pays 3% variable on up to £3,000 with unlimited withdrawals, so may be better.
Q. Those are savings accounts, what if you want them to have an account where they can spend on a card or online?
A. If they're aged 11-18, the Santander 123 Mini account pays 3% on £300-£2,000 and gives a debit card to use in shops. However, if your child is under 13, you need to have a Santander current account and open it for them in branch. Anyone aged 13 or over must open it themselves. Alternatively, the TSB Under-19s' Account can be opened by 11 to 18-year-olds and pays interest of 2.5% on balances between £1 and £2,500, and with it you can either choose a cash card (only for withdrawing cash) or Visa debit card (to use in shops).
There are also prepaid cards available (for kids aged over 8), which often offer extra functions allowing you to set spending limits or monitor what is being spent, but you have to pay. Nimble is £15/year (you get a one month free trial), Osper is £30/year (first month is free) and GoHenry £2.99/month (so £36 a year, first month is fee-free). All three cards allow you to spend in shops (though not in gambling stores or some places that serve alcohol) and withdraw cash from ATMs for free (worth noting you only get one free cash withdrawal a month with Nimble, after that it charges 49p per withdrawal).
Q. Can grandparents open these accounts?
A. For younger children, an adult – needs to open the account on the child’s behalf and be a trustee or signatory (children don’t usually need to be present but you’ll need ID for them, such as a passport). Your name will then be on the account with the child’s but it’ll be your signature that controls it, not theirs. Most accounts including the Santander and Nationwide are parents only (or those with parental responsibility), though grandparents can off course pay in. With the Halifax account, grandparents can also manage the account.
Q. What about saving in a junior ISA – are these still worth it?
A. Junior ISAs (JISAs) are special savings (or investment) accounts, that you can save a set amount in each tax year; this year it’s £4,260. Crucially in these the money is locked away until your child’s 18th birthday (after that though it’s there’s to do what they want with).
The big benefit has always been that the interest is tax-free, but unless your children have big earnings or enormous savings their money isn’t taxed anyway, so there’s no gain.
There’s a rule that says kids’ can only earn £100 interest a year (so that’s about £3,000 saved in the top easy-access account) from money given by each parent. Above that it’s counted as the parents’ income and taxed at their rate – though as most parents don’t pay tax on savings any more either (unless they’re higher rate taxpayer or have a shed load) that isn’t such an issue either.
Yet unless you will, the only reasons for using a Junior ISA is as a way to lock money away until they’re 18 and the fact their rates currently beat the top paying savings accounts (no guarantee they always will though) for lump sums. The top top-paying JISA cash accounts is from the Coventry BS paying 3.6%. If yours is a savings not an investment one and it pays less, you can transfer it across.
Q. My child has one of the old Child Trust Funds - what should I do?
A. Kids aged 7-16 may still have a Child Trust Fund (CTF), which were opened automatically by the Government. They've been replaced by JISAs, but if you've still got one (and there are around 1million dormant ones, you can check if you had one using HM Revenue & Customs (HMRC)’s handy tool), if it’s the savings not the stocks and shares version it's likely to be paying rubbish interest, so best is to transfer it into a JISA. To transfer it just apply for a JISA then fill in the transfer forms, so it’s a no brainer.