Amidst the fall in savings rates in recent years, new best buy children’s savings accounts have come away almost unscathed. Many of these accounts have maintained top paying rates, for example the Halifax has offered one of the best children’s regular savings accounts for many years, holding its top rate of 6% for new savers since 2012.
But it’s not just children’s regular savings accounts that have fared better. Easy access children’s accounts have also held strong with the average best buys paying 2.68% when compared to the average best adult easy access accounts paying 1.34%.
While traditional adult savings account best buys have more than halved over the years, children’s accounts have stayed strong, with rates well over and above what their parents can achieve.
For parents or grandparents looking to start saving for their children, the advice is to start early. Much like building a pension pot, the earlier you start the easier it is. For example, parents who start saving just £100 a month today could amass a savings pot of £28,554 in 18 years time. Start saving when your child is eight and you would need to put aside £204 per month to build up a similar pot by the time your child is 18. Leave it until they are 13 and it would cost £441 a month. ¹
It's worth remembering that with any money that has been gifted to a child by their parent, if it’s outside a Junior ISA, the interest earned may be liable to tax, under the £100 rule.
This means that on money given to a child by a parent, if it earns gross interest of more than £100 (per parent) in any tax year, this interest is taxed as the parent’s own income and therefore they would need to declare this interest to HMRC.
This rule does not apply however to grandparents or other friends and relatives. Neither does it apply on funds invested into a Junior ISA or Child Trust Fund.
Starting a family can be expensive, but it’s sensible where possible, to put a little aside to build a lump sum. At least it’s encouraging that children’s savings accounts still offer some competitive rates to entice us to save for our child’s future.
If you’re looking to find the best rate for your child or grandchild, take a look at our best buy tables. Or why not speak to one of our savings advisers on 0800 321 3581 who would be happy to help and point you in the right direction.
Notes: 1) Calculations based on an assumed interest rate of 3% gross AER, over the full term (18 years = £28,553.90, 10 years = £28,519.61 and 5 years = £28,552.51)