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Children’s Savings Account: What is it and how it works?

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 early, and piggy banks bring an all-important element of fun into the process.

🏦 How can I save for my child?Open a child’s savings or investment account
📒 Can I open a savings account for my child in the UK?Yes, you can
🔞 What age can a child access their savings?Age 18
🎯 Which child investment savings account can a parent open in the UK?A junior ISA

But it is only that – it’s not really serious in terms of teaching the act of saving. So to bring a serious element into the mix, kids can and should have a child savings account.

What is a children’s savings account

A children’s savings account is a bank or investment account designed specifically for young minors or individuals, usually those under the age of 18. The parents or legal guardians usually open these accounts on behalf of the child. Parents can use the money saved in this type of savings account to offset the cost of raising a child in the UK and save for a child’s future expenses or goals, such as college education, buying a car or a house, or other significant expenses.

How do children’s savings accounts work?

Children’s savings accounts work similarly to regular savings accounts but with some specific features designed for young savers. The rules on child savings accounts vary slightly from provider to provider and from product to product. Therefore, conducting research before deciding on the best children’s savings account for your child or grandchild is best.

As adults, many of us may 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 relatively safe. Higher interest usually means higher risk, which is not always something grown-ups are willing to entertain when considering their kids’ savings.

Some children’s savings accounts may have higher interest rates than regular savings accounts and may also have lower minimum deposit requirements. In addition, a child’s savings account may be restricted or require the signature of a parent or legal guardian. Some of these accounts may also have special features, such as online tracking and materials to educate children about saving and budgeting.

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

Getting a child interested in a kids’ savings account

Getting your kid interested in a child savings account shouldn’t be 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. Then you can explain that banks are there to make money from people who save with them but that the child is responsible for keeping hold of that money.

Selecting the best children’s savings account

You want to avoid involving the child in gathering information on the children’s savings account UK options, including premium bonds for children. Instead, it’s best to figure out 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.

Keeping the child interested

Once you’ve both decided which investment provider, bank or building society 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 frequently and reporting back to you, regardless of the type of savings account ( ISA or an easy access or variable rate savings account).

Opening a child savings account online

Opening a savings account for a child online saves you the hassle of returning to the bank or investment provider of your choice once you decide which of the best children’s savings accounts you will run.

Again, it’s something in which you can involve the child. For example, 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. Some people think you can’t because it’s only the parents who can set up a junior ISA. However, a grandparent can open a savings account for a child as long as they have the appropriate documentation.

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

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

Some older generation members may think that a young person can only withdraw money from their child’s savings account once they are 21. However, it is not the case. Today, the child savings account no-access-until-18 rule applies in most cases.

Which children’s savings account should I choose?

Before saving or investing for children, an ISA vs savings account comparison needs to be done. If you’re looking for the best savings accounts for kids or the best child savings account, many lists are available online to get you started. Look for information that contains lots of data about various providers and accounts and information on the ages at which children can begin to check their accounts.

When choosing a children’s savings account, you must consider several factors. They include interest rates, minimum required deposit, management fees, accessibility (online or mobile app), education resources, and age limit. Choose the right savings account for your kid based on your financial goal and circumstances. Also, remember to use savings accounts that are protected by the Financial Services Compensation Scheme, which protects up to £85,000 per person.

Junior or Child ISAs

Child savings accounts or junior savings accounts provide better interest than adult regular savings accounts, making them one of the best ISAs for a baby. It’s great news because it means it is easier to accumulate more savings.  However, ordinary child savings accounts generally do not 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 in profit earnings.

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 safer. However, funds invested in a stocks and shares Junior ISA are subject to the fluctuations of the stock markets, so an element of risk is involved.

But since a Junior or Child ISA is usually 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 £4,000 per annum per tax year.

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. Therefore, in the long term, unless the best children’s 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 only you can make.

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Which savings accounts have the best interests in the UK?

Many savings accounts offer low-interest rates. However, the types of ISAs may offer some of the best rates for investment accounts, such as Junior ISAs for children.

How to open a savings account for your child?

Go to a financial institution with the appropriate documents and open an account for your child. With kids’ savings accounts, parents usually have joint ownership or control of the account. The parents handle their children’s finances until they are old enough to manage themselves.

Can I start a Junior ISA for my baby?

Yes, you can start a Junior ISA account for your baby in their name, as long as they are a UK citizen and under 18 years of age. Once the child turns 18, they can manage the tax-free savings account.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.