Children’s Savings Accounts

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Children’s Savings Accounts

Children’s Savings Accounts are designed to help people get into the habit of saving from an early age. With over 160 child savings accounts available to choose from, parents have plenty of options available to ensure that the account they choose offers them the best return on their child's savings.

Providers often offer children a range of incentives when opening an account in an attempt to encourage them to save their money. However, it is important parents do not get distracted by what gift is on offer and make their choice of account based on what the rate of interest is.

Types of accounts

Children’s Accounts can be easy access, notice, or fixed-term accounts. Most accounts are instant access, allowing money to be withdrawn without notice or penalty. However, some accounts come with restrictions, such as, notice periods, limited withdrawals and size of investments. Whilst the account may be in the child’s name, it is managed and run by the parent(s).

Notice accounts normally offer a higher level of interest compared to instant access accounts. However, parents looking for the most attractive interest rates should consider fixed-term accounts. With these accounts, the money invested normally has to be tied up in the account for a specific period of time, usually anything from 1 to 5 years or some providers require money to be left until the child has reached a certain age.

Age Limit

There is no minimum age restriction for when a children’s account can be opened, although most providers require a parent or guardian to open and run the account until the child is 11 years old.

When a child reaches the age of 18, the account provider usually transfers the savings account over to an adult savings account.

Tax

Children and young people are liable to pay tax in the same way that adults are. However, in most cases their income will be well below the tax-free allowance that everyone is entitled to. If the only income that a child has is the interest from a savings account, he or she should be able to register to have the income paid tax-free. Parents or guardians should ask the bank or building society for a R85 form to get this done.

In cases where the child’s money has been given by a parent, and the interest in all the child’s accounts (if there is more than one account in the child’s name) exceeds more than £100 in any one tax year, then interest will be taxed as if it were the parent’s income. This rule applies to money given by a parent and not for friends or any other relatives.