🔔 All I want for Christmas is... cash

Author: Dan Darragh
06th December 2012

A savings account is a useful Christmas present - and it doesn’t need batteries.  It helps children learn the value of money.  Prompting kids to save for what they really want makes a new toy extra special.  They might even volunteer for pocket money duty.

Many kids’ accounts pay more than those foisted on us adults.  The best simple account comes from Virgin Money.  Its Young Saver easy access account pays 3% gross for kids up to 15 years old.  There’s a low minimum of just £1 and no restrictions on withdrawals.  The maximum investment is £10,000 for generous parents and relatives.

If you’re willing to put up with a few conditions, better rates are available.  Principality’s Regular Savings Bond pays 4% for three years.  You’ll need to deposit at least £10 per month to get that rate or it drops to just 0.90%.  Plus the young saver gets a Dylan the Dragon money box to store their pennies.

There’s no tempting gift from Halifax but there is a cracking interest rate.  Deposit a minimum of £10 per month into its one year fixed rate Kids Regular Saver and your child will earn 6% gross/AER.  But with both these accounts, children cannot withdraw their cash until maturity – that may be a good thing!

Restrictions on the new tax-free Junior ISA (JISA) are even tougher.  Maximum cash contributions are £3,600 per year.  JISAs are only open to certain children; those with Children’s Trust Funds are barred.  And withdrawals cannot be made until they celebrate their 18 birthday.

National Savings (now called NS&I) is still worth a look, although terms and access have changed recently.  The latest five year Children’s Bond - Issue 35 - pays 2.50% tax-free.

The tax-free temptation of JISAs and National Savings may be a red herring.  Most children can get their interest tax-free AND make withdrawals on their instant access accounts. 

All children get a tax-free allowance, just like adults, providing the right form has been completed.  For children under 18, a parent or guardian must sign form R85 and hand it in when opening the account.

However, there is a special rule if the savings are a gift from parents.  The ‘£100 rule’ says annual interest over that amount (per parent) counts against the parent’s tax allowance, and therefore they may need to pay tax on their child’s savings.  Call us on 0800 321 3581 for more information or click here for details from HMRC.

Even so, a parent could deposit £3,000 in a Virgin Little Rock account and let their child withdraw some of the interest in the coming year without adding to their own tax bill.  Allowing children to spend their savings should also make opening an account more appealing!

Click here to see the see the current best buy table for Children’s Accounts