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Child savings account – what’s the best savings account for your kids?

Most kids love piggy banks. The cute designs, the clank of the coin as it is dropped into the slot, and the donors’ smiles are more satisfying to the child than the notion of saving money. Still, it’s good to get children into the idea of saving at an early age, and piggy banks bring an all-important element of fun into the process.

But it is only that – it’s not really serious in terms of teaching the act of saving. To bring a serious element into the mix, kids can and maybe should have a child savings account. As adults, many of us disparage ordinary savings accounts because of the low interest rates. Of course, the reason that the interest rates are low is that the money is safe. Higher interest usually means higher risk, and that’s not always something grown-ups are willing to entertain when thinking about their kids’ savings

So if you are thinking about opening a child savings account for one of your own kids or one of your grandchildren, you will naturally want to select one of the best children’s savings accounts that you can.

Getting a child interested in a kids savings account

Getting your child interested in a child savings account shouldn’t be all that difficult. After all, kids are naturally curious about almost anything. You can start by telling them that by putting money into the best children’s savings account, it will grow in value. You can explain that banks are there to make money from people who save with them but that it is the child’s responsibility to keep hold of that money. Here are a few tips on engaging the child on the subject of having a child savings account:

Explaining that the bank works for the child

Explain that when money is put into a piggy bank, it just sits there doing nothing. But when that money is put into a child savings account, the child is actually lending the bank money and that the bank should reward them for doing so. 

That reward comes in the form of interest, which increases the amount of money in the account. The more money in the account, the more interest it earns. This is an important concept to get across, as is the fact that it is the bank’s responsibility to ensure the interest is added correctly. 

Getting the child involved

The importance of saving for the future is not something that a child will easily understand. So it’s important to involve them as much as possible in the mechanics of setting up and monitoring a child savings account.

Selecting the best children’s savings account

You don’t want to involve the child in the initial work of gathering information on the children’s savings account UK options. It’s best to gather all the initial details yourself, slim them down to what you believe to be the best children’s savings accounts around, and then go through the selection with them, explaining the pros and cons of each one in simple terms. This guide on the money helper.org.uk website might come in handy. 

Keeping the child interested

Once you’ve both decided which bank to go with and after setting up a savings account for a child, you can keep the child’s interest focused by checking out the accounts’ progress from time to time, whether it is an easy-access or variable rate account, and reporting back to you.

Opening a child savings account online

The open savings account for child option saves you the hassle of having to go back to the bank of your choice once you’ve made the decision of which of the best children’s savings accounts you will run.

Again, it’s something in which you can involve the child. When opening the best savings account for a grandchild, it’s often the child who is more computer literate than the grandparent, so it makes sense to do it together.

Opening savings accounts for grandchildren

If you are asking yourself can I open a savings account for my grandchild, then the answer is yes, you can. The reason that some people think you can’t might be because it’s only the parents who can set up child ISAs. However, a grandparent can open a savings account for a child as long as they have the appropriate documentation.

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You can “gift” a child up to £3,000 per annum totally free of inheritance tax. You can carry this allowance into the next year and gift £6,000 tax-free. 

When can a young person withdraw money from a child savings account?

Some older generation members still think that a young person cannot withdraw money from their child saving account until 21. It is not the case. Today, it is the child savings account no access until 18 rule that applies in most cases.

On researching what is the best savings account for a child

The rules on child savings accounts vary slightly from provider to provider and from product to product. Take the HSBC child savings account. You can open a child savings account for a child aged between 0 and 18 years. The Dudley, Saffron and Halifax building societies specify the age spread as being 0 to 15 years.

With a Halifax Kids Savings Account, on the child’s 16th birthday, the account reverts to an adult everyday saver account, granting easy access to the funds. Bank of Scotland will contact you before the child’s 16th birthday to ask you if, on the child’s 16th birthday, you want the funds to be transferred into an access saver account. They will also contact the child between the ages of 13 to 16 to advise them that they hold their personal information.

With such diversification of rules and regulations, for people opening a savings account for a grandchild or an own child, it’s important you do your research well before deciding on the best children’s savings account.

List of the best savings accounts for kids

If you’re looking for a list of the best savings accounts for kids, have a look at the investopedia.com website. Admittedly, there are many such lists on the internet, but this will get you started. It contains lots of data about various providers and accounts together with information on the ages at which children can begin to check their accounts, plus accessibility and interest rates. But what other options are there, you may ask yourself when it comes to child savings?

Junior or Child ISAs

Child savings accounts provide better interest than adult savings accounts. It’s great news because it means it is easier to accumulate more savings. However, ordinary child savings accounts do not normally perform as well as Junior or Child ISAs. However, the ISA should be the stocks and shares variant rather than a Junior Cash ISA to make a significant difference.

Junior Cash ISAs offer very similar interest rates to ordinary child savings accounts. The one advantage they both have is that funds invested within them are very safe. Funds invested in a stocks and shares Junior ISA, however, are subject to the fluctuations of the stock markets, so there is an element of risk involved.

But as a Junior or Child ISA is normally taken out over an extended period, a large amount of that risk is mitigated. Junior ISAs also have a larger personal annual allowance of up to £4000 per annum.

Final thoughts on finding the best kids savings account

We have been through turbulent times recently with regard to the COVID-19 pandemic. One of the consequences is that inflation has reached much higher levels than was previously anticipated. It does mean that in the long term, unless the child savings account selected offers good interest, in real terms, the savings could significantly devalue over time. 

It is why many adult savers opt for stocks and shares ISAs, which typically return much higher interest levels than other saving methods. It all comes down to the levels of risk you are prepared to take on behalf of the child, which is a decision that only you can make.

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