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Best way to save for your child

Learn more about what options you have when it comes to saving for your child.

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By

Kate Steere

Updated

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As a parent, you want to do the best for your child. That includes saving for their future. Much like adult savings accounts, there are lots of children’s savings accounts you can choose from.

Ultimately, the best way to save for your child comes down to why you are saving and how much you want to save. This guide takes you through the most common options.

What type of account should you choose?

Children’s savings accounts are slightly different from their adult counterparts as they can only be opened by the child’s parent or legal guardian.

However, the same as adult accounts, there are several different types to choose from.

Picking the best one for your child depends on what kind of access you or they want, what your child is saving for and whether you are planning to deposit a hefty sum of money.

Children’s instant access accounts

Children’s instant access accounts allow you to add and withdraw money whenever you like.

Here are some things to think about:

  • Money can be accessed at all times.
  • There is no limit on the amount of deposits that can be made.
  • Interest rates tend to be lower.
  • Some accounts have a maximum limit.

Children’s fixed-rate bonds account

A fixed-rate bond is a long-term savings account for your child. Typically, there is a set period where you or your child cannot access the money.

Key characteristics include:

  • One-time deposit on account opening.
  • Money can’t be accessed until the end of the bond’s term (1-5 years).
  • Interest rates are fixed.
  • The longer the money is “locked away”, the higher the rate you can expect.

Junior cash ISA

A Junior ISA is a tax-free savings account. You can put up to £9,000 into a Junior ISA in the 2022/23 tax year. This can be split between the two types: a Junior cash ISA and a Junior stocks and shares ISA.

Here’s what you need to know about Junior cash ISAs:

  • Earn tax-free interest.
  • Accounts have to be opened and managed by a parent or legal guardian.
  • The money belongs to the child and can only be accessed when they turn 18.
  • You can only pay up to the maximum tax-free yearly allowance.

Junior stocks and shares ISA

A Junior stocks and shares ISA is an investment wrapper. It lets you invest with the money you have paid into the account.

Let’s look at the details:

  • Holds investments instead of cash.
  • Accounts have to be opened and managed by a parent or legal guardian.
  • The money belongs to the child and can only be accessed when they turn 18.
  • You can only pay up to the maximum tax-free yearly allowance.

How to open an account

Typically, a parent or guardian needs to open a child’s savings account or a Junior ISA. However, some providers, such as Halifax, allow a grandparent to open a savings account for their grandchild as long as they can provide documentation, such as the child’s birth certificate.

How to open the account depends on the provider. You may need to phone to request an application pack or go into a branch. With others, you can open online. In both cases, you’ll need your personal details and proof of ID and your child’s birth certificate.

How can your child access these accounts

Access depends on which type of account your child has. For most of the accounts mentioned in this guide, your child cannot access the money for a few years or until they turn 18.

If they have an easy access account, they can make withdrawals at any time.

How they can do this depends if the account is held in trust or if the account is held by the child.

  • Accounts held in trust. If the account is held in trust by you for your child, you can make withdrawals from them in branch or transfer funds online.
  • Accounts held by child. If your child is aged 11 or over, you can only make withdrawals in branch.

Tax on children’s savings accounts

In most cases, children don’t have to pay tax on the interest they earn on their savings. This is because they are unlikely to earn more than their personal allowance for income tax – £12,570 for the tax year 2022/23.

The only other occasion where taxes will apply is if they earn more than £100 a year in interest from money given by their parents or legal guardians. The rule doesn’t apply if the money is given by another relative or friend.

Bottom Line

The best way to save for your child depends on what you are saving for. If it is for their future, university costs or helping them out with a housing deposit, then you want something that grows over the long term like a Junior ISA.

However, if your goal is to teach them about interest and allow them to use their savings when they need, you are better off with an instant access account. Interest rates may be lower, but your child can dip into the money when they want.

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