It’s never too early to teach a child the benefits of saving and being good with their money. A lot of parents and young people view money like English, Maths, or Sport. You’re either good at it, or you aren’t.
This isn’t true! As with anything, with a bit of practice anyone can be good with their money. Teach your children from a young age and they will be savvy for life. Check the table below to compare children’s accounts and Junior ISAs.
What are the differences between a children’s bank account and a normal bank account?
A children’s bank account is pretty similar to a normal current account, but with a few differences. Take a look below:
- Interest and bonus interest. Regular bank accounts rarely reward the account holder with interest. Kids savings accounts not only provide a variable base rate of interest, but your kid can earn a competitive bonus rate of interest when they maintain regular deposits and make no withdrawals.
- Debit card access. Debit card access is a key difference between a kids bank account and a regular bank account. Kids bank accounts with a linked debit card are available for applicants over the age of 11. Otherwise you and your child must visit a branch to make a withdrawal.
4 lessons your children can learn from having a bank account
- Learn about budgeting. This one is obvious. Opening an account and having a fixed amount coming in and out of it teaches children about the basics of budgeting. If you don’t the money, you can’t spend it!
- See the value of saving. Most children have their sights set on new toys, video games, and accessories. If you set them up with an account, and drip pocket-money into the account – they’ll soon realise the value of saving. You might need to point it out, but you’d be surprised how many kids are naturally inclined to save, and become pretty determined to reach their goal!
- Understand interest… A regular piggy bank just sees the money sit there. A real bank is actually borrowing your money – and they’ll pay you for it! This is the basic explanation of interest that it’s important to grasp from a young age.
- …and how your money can work for you. Linked to interest is the idea that money can work for you. If a child is taught the basics of budgeting, saving, and understanding interest (as well as other tips and tricks!) they will really push their money and put it to good use.
Children’s bank accounts and tax
Lots of people think children don’t pay tax. This isn’t right, children are taxed just like adults. The reason for this confusion is just that kids don’t earn – so they can earn up to £17,500 from savings without paying tax. (This includes the £5,000 starting savings allowance, + £11,500 personal allowance, + the more recent £1,000 personal savings allowance (PSA)).
If, however, money given to a child by a parent or guardian is more than £100 in a year, then the money is taxed just like it’s the parent’s.
The thinking behind this is to stop parents using their kids as a tax-free extra allowance…!
How can I open a child bank account?
Any parent or guardian can open up a child’s bank account or a Junior ISA. Individual providers may vary when it comes to an adult who is neither the parent or guardian trying to set up the account, so you’ll have to check that out.
Otherwise it’s as simple as opening up any normal banking account.