Since the credit crunch in 2008 we seem to be in a permanent state of having to save with very poor interest rates. This has meant that we need our money to work harder when we do have some to save.
When I was younger the only account I had was a post office account and although I had had it since 3 months old I did very little with it; accept maybe putting the odd bit of money left over from birthday and Christmas presents. I now have two little ones (3 years and 4 months) and am faced with having to find a bank account for them that will make their money work for them but still work with us. There are so many different types of children’s accounts around that it is hard to know which one will best suit you and your children’s needs. From what I can tell they all come into 4 different categories, which I have outlined here.
Children’s savings accounts
These work in much the same way as an adult’s saving account but can pay little interest. The beauty of these is that you can use them to help teach your children about saving money. Having their own account will naturally make them more aware of money and saving and help them to make good saving choices.
Children over the age of 7 can have control of their own account – paying in and out as they wish but this does depend on the account and bank you choose. Helpfully, it is easy to put money into these accounts, so come birthday, Christmas or just pocket money your child can save a little bit easily. It will also allow you to save a little bit for your children. Just think if you put in £1 a week that would be £936 by the time they are 18 (that doesn’t include anything extra interest would give them!). And £1 is all you need to open a savings account.
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There are two different types of children savings accounts, easy or instant access or regular savers. As the name suggests the easy or instant access accounts mean you are able to get the money out as and when you want but it will give you a lower interest rate.
The regular savers encourages you or your child to save on a regular basis and will reward you with a higher interest rate. However, you will not be able to get hold of the money as easily or if you stop the regular payments the interest rate may decrease. When choosing which bank account to go with don’t be swayed by the free gift (usually a money boxes or toys) as these usually have lower interest rates. You can open more than one account so go with the higher interest rate and open another to get the free gift if that’s what you or your child wants to do.
Junior cash ISAs (or stocks and shares ISAs)
Unsurprisingly, a Junior ISA is only available to those under 18 but they are only allowed one. Your child can change banks but can only have one Junior ISA at a time. Unlike an adult ISA you cannot get the money out until the child is 18 and the limit is only £4080 a year. This means that should you or your child wish to put in more than £4080 in a year the money will be automatically help in a savings account in trust until your child is 18. The main advantage to this account is that you will get a higher interest rate and the interest is not taxed and it can be opened with £1. The main disadvantage with it is that you or your children cannot get hold of the money until they are 18 – however, that is not necessarily a bad thing!
NS&I Children’s bonds
Things start to become a little more complicated with the last two.
NS&I Children’s bonds can only be bought by the parent, guardian or grandparent but it is the child who owns them. They are bought in issues that run for 5 years and each of these has its own fixed interest rate which is added at the end of each year. Although your child owns the bonds, the parent or guardian holds them until their child is 16. There is a calculator on the NS&I website which will enable you to work our how much an investment is worth.
Friendly Society tax-exempt Plan
I had never heard of these until I started looking into the different types of account I could open for my children. Friendly Societies are one of the oldest types of financial services operations around. They are owned by their members for the advantage of their members. You must pay into a plan for anything between 10 and 25 years and you can only pay a maximum of £25 each month. Over the year that is £300 – if you wanted to pay one amount you can only pay a maximum of £270. The plan can only mature when it has been running for over 10 years and your child is over 16 so it will involve tying the money up for a long time. The main downside to this type of investment is that it can go up and down.
I ended up going with a savings account mainly because it can be used as a learning point as my children grow older. I like the flexibility of being able to take money in and out of the account easily.
Which account do you recommend? How much do you save a month?