If you want to save for your child’s future or to put their money in a separate place so that they can use it when they are old enough a children’s savings account is a good way of doing so. For one thing all children, like adults, are given an annual personal tax allowance of up to £5,225, which is the amount they can earn or save before it is taxed. But as children do not earn wages this means that unless they are saving over that amount per year then all their savings will earn tax-free interest.
In order to claim their tax-free interest you need to fill out an R85 form which the bank should give you when you open the account. Don’t assume that your child’s interest will automatically be paid tax-free as in many cases you will need to ask for it. Also worth mentioning is that if your child earns more than £100 gross in interest a year specifically from one parents gifts then the whole of the income from the gifts is normally taxed as that parent's income. However each parent can give gifts that amount to the £100 rule and gifts from friends and other relatives are not subject to that rule at all.
When looking to open a children’s saving account you need to decide what it is you want from the account. For instance do you want to be able to get instant access to the money? How do you want to manage the account, by post, online or through the local branch? Do you have a lump sum to save or do you want to make regular deposits? After deciding what you want to do with your child’s savings then you can look at all the various accounts offered by banks and buildings societies.
If you want one of the highest interest rates possible along with instant access you should take a look at the Saffron Walden Building Society’s Ladybird account which is currently paying 5.55% gross AER. Also the Halifax’s Save4it account is currently offering the same 5.55% gross AER.
If you are looking to make regular deposits into your child’s account you should look at the Halifax’s Childrens Regular Saver account which is currently offering a huge 10% gross AER. However there are restrictions on this account such as: the interest rate is only fixed for one year after which time the money is transferred to another Halifax account, normally the Save4it account; you can not make any withdrawals until it has moved into the other account at the end of the year; you must make a regular deposit of between £10-£100 per month by standing order from a bank account. Despite all these conditions this is still a great account for those who wish to make regular savings and earn a very good interest on top.
It is vital that you shop around and look at a number of different accounts to see what's on offer and what would be best for you. In order to avoid hours of time spent looking at every bank's websites to see what they offer it is a good idea to use a comparison site to quickly compare accounts and interest rates. When using these site however please remember that they may not include all of the banks offering accounts and they may be linked to certain organisations to promote them first. So it is always worth using two or three different comparison sites to get a broader spectrum of results. The two that I think are worth using are: this is money.co.uk and money supermarket.com
When using these sites always read the terms and conditions of the specific accounts you are thinking of opening as there may be restrictons and limitations on them.