Saving for children
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Saving for a child today is a wonderful gift for their future. Not only can they start their adult lives with some savings in hand, but getting kids involved early with saving also helps them learn important lessons about money. Find out about products that can help you start saving for children.
Savings options for children
Here are some of the most popular savings products for children.
Children’s savings accounts
Did you know?
Saving a little each month, say £5 for 18 years, will add up over time, and earn interest too! Your savings could grow to be enough for your child to pay for driving lessons, or to cover a deposit on their first rented home.
- You can set up an account with a bank or building society on behalf of a child. They can start managing their own account once they reach the age of seven.
- These accounts offer a great way to learn how to manage money and help get kids into the savings habit. And some providers will include a gift with the account, like a money box.
- Start an account with as little as £1.
- In most cases, your child can take out their money whenever they like.
- Interest is normally paid with tax taken away, but you can reclaim this later. Or, you can get the interest paid in full without tax being taken off by asking your bank or building society for HMRC Form R85.
Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.
We recommend the following websites for comparing savings accounts:
- Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
- It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
- Find out more in our guide to comparison sites.
Junior Cash or Stocks and shares ISAs (sometimes called NISAs)
Did you know?
Recent research shows that, on average, parents in the UK are putting aside £42.45 a month for each child.
Source: L&G Investments
- Children born after 3 January 2011 – or those aged under 18 and born before 1 September 2002 – can have a Junior ISA. This applies for those children born between 1 September 2002 and 3 January 2011 who are not eligible for a Child Trust Fund (CTF).
- Cash ISAs are a good savings option because you pay no tax on the interest or return. Stocks and shares ISAs, however, are classed as ‘tax-efficient’ because, although returns are free of UK Income and Capital Gains tax, there are other taxes payable on the investment such as taxes on dividend income which is 10% and cannot currently be reclaimed.
- While a parent or guardian must open the account, the money belongs to the child. But they can only withdraw the money after turning 18.
- Each child can have one Junior Cash ISA and one Junior Stocks and shares ISA during their childhood, but it is possible to transfer each to different providers. Junior ISAs do not operate as an annual contract, unlike the adult version.
- Junior Cash ISAs work the same way as a savings account, except that the interest is tax-free and the money is locked up until the child is 18.
- Junior Stocks and shares ISAs let you buy shares, bonds and other eligible investments on behalf of a child. The value of these investments can go down as well as up.
- The Junior ISA limit is £4,080 for the 2015-16 tax year.
- If the child is aged 16 or 17, they can take out an (adult) cash ISA and save up to£15,240 a year, as well as up to £4,080 in a Junior ISA.
NS&I Children’s Bonds
- The child owns the bonds, but only a parent, guardian or (great) grandparent can buy them. The parent or guardian holds them until the child turns 16.
- Bonds are sold in batches known as issues that run for five years each. Each issue has its own fixed interest rate. Interest is added at the end of each year.
- At the end of each five-year period, you can roll over the issue into a new five-year issue until the child’s 16th birthday.
- You can start investing with just £25 up to a top limit of £3,000 per issue.
- All the interest is tax-free – no parental tax settlement rules apply.
Use the interest calculator on the NS&I website to see how much an investment in Children’s Bonds could be worth
Friendly Society tax-exempt plan
- These children’s savings plans are only available through Friendly Societies, which are owned by their members to work for the advantage of those members – mutual benefit organisations.
- Choose to pay into the plan for between ten and 25 years.
- Money is invested in a share-based investment fund for the term length you choose. The maximum amount that can be paid in is £270 a year, or £300 a year if you pay in £25 each month.
- On the maturity date, the child must be at least 16 and you must have paid into the plan for a minimum of ten years.
- The value of these types of investment can go down as well as up. Friendly Society policy charges also apply.
- As long as you continue to pay into the plan for a minimum of ten years, you don’t pay Capital Gains and Income Tax on any gains or income.
Child Trust Fund accounts
Children born between 1 September 2002 and 2 January 2011 qualified for the government’s Child Trust Fund scheme.
From April 2015 parents can transfer savings from Child Trust Fund accounts to Junior ISAs.
Find out more with our guide on Child Trust Funds.