Child piggy bankAccording to the Halifax 25th Anniversary Pocket Money Survey, the average amount of pocket money received by UK children (aged 8-15) in 2012 is £5.98 per week. That equates to nearly £24 a month or £287.04 a year! And this is on top of any earnings or gifts given by friends or relatives.

So, where can kids put all this extra cash? The humble piggy bank is an option but if you want your children's pot to grow and encourage good habits for later in life, a savings account is a more sensible idea.


To save you the trouble we have rounded up the best instant access and regular savings accounts on the market for kids at the moment.

Top instant access accounts for kids


Provider

Account

Rate
AER

Min-Max
Investment

Age

Extras

Lloyds TSB*

Young Saver

3.00%

£1-£20k

Birth-16

Gift of a Stanley money box on account opening. Rate drops to 0.5% after £20,000 is reached.

Virgin Money

Little Rock Access Account

3.00%

£1-£10k

Birth-16

None

Skipton BS

Leap Account Issue 2

2.75% (including a 0.5% bonus)

£1-£50k

Birth-17

Collect stickers every time you deposit £20 to get one of four books.

Swansea BS**

Cygnet Children's Account

2.75%

£1-£50k

Birth-18

None

Stafford Railway BS

First Track

2.25%

£1-£25k

Birth-17

None

Chelsea BS

Ready Steady Save

2.00%

£1-£20k

Birth-15

None

Chorley BS Young Chorleian 2.00% £5-£350k Birth-21 None

Halifax/Bank of Scotland

Young Saver

2.00%

£1-no limit

Birth-15

None


*You must have a Lloyds TSB adult current account
**Only available to those living in selected postcodes

Compared to five years ago, when rates on instant access accounts for kids neared the 6% mark, the choice on offer today isn't great. But until the base rate rises, all savers look set to suffer.

Top regular savings accounts and bonds for kids

A regular savings account could be a more lucrative alternative to instant access.

These savings vehicles typically allow you or your child to save between £10 and £100 each month for at least a year. And while your child will have no access to his or her cash during this period, they will typically earn a higher rate of interest.

Beware though as if you miss a payment the interest rate may be cut to something far less attractive, or the account may even be closed.

Here are the top regular savings accounts for kids at the moment.

Provider

Account

Rate
AER

Min-Max
Investment
/month

Age

Notes

Halifax

Regular Saver

6.00%

£10-£100

Birth-15

Access on closure only. One-year bond, no withdrawals permitted.
At maturity capital and interest transferred to a Halifax easy access account.

West
Bromwich
BS

Regular Saver Child

4.60%

£10-£100

Birth-16

No withdrawals permitted in the 12 month period. Minimum of 10 regular monthly payments.

Principality Building Society

Dylan's Regular Saving Bond Issue 4

4.00%

£10-£150

Birth-16

Access on closure only. Three-year bond, no withdrawals permitted. At maturity reverts to Children's Account.

Mansfield BS

Young Regular Saver

3.00%

£1-£500

Birth-18

Two withdrawals a year permitted. Free piggy bank.


As you can see, interest rates are far more exciting on regular savings with Halifax offering a market leading 6% AER at the moment. That's double the rate of a best buy instant access alternative.

R85

Regardless of the account you choose, in order to receive interest free of tax, you (or your child) will need to have filled out an R85 form for each account, which you can find here.

And of course, some of these accounts are for children from when they are born all the way up when to the age of 20, during which time a good many will have started work (and begun paying tax).

It's therefore worth remembering that anyone aged 16 or over can save up to £5,640 in a Cash ISA. Alternatively, if you want to get your child on the tax-free savings train earlier you could also consider a Junior ISA.

Junior ISAs and Child Trust Funds

Junior ISAs (JISAs) were launched in November 2011 and offer parents a vehicle to save up to £3,600 tax-free for children under 18 who do not have a Child Trust Fund.

JISAs have replaced Child Trust Funds and so are only available to under-18s born before September 2002, when CTFs were introduced, or babies born after this scheme ended on 3rd January 2011.

Account management responsibility will pass onto the child when they turn 16, but they can't access the funds until they are 18 years old.

Although children don't ordinarily pay income tax on cash savings (see the £100 rule below) a Cash JISA will turn into an adult ISA, which will be useful for keeping a potentially very large savings pot tax-free when they become adults.

A JISA could produce a tax-free payout of £105,000 at the age of 18, assuming the child's parents invested the maximum £3,600 per year from birth and also assuming a 5% return per year.

If you like the sound of this particular savings vehicle, take a look at The best Junior ISAs for a round-up of the rates on offer at the moment.

If you have a Child Trust Fund unfortunately interest rates for cash accounts have plummeted. But if you have some money invested it's worth taking a few minutes to see if your children's account is earning as much as it could.

£100 rule

Although the temptation may be there to stash all of your savings in your child's name, remember that the £100 rule means that should your child earn more than £100 in interest as a result of gifts from a parent over a year, it will be taxed at the parent's income tax rate (unless it's in an ISA).



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