Give them the present of a savings habit

Published on Saturday 22 December 2007 13:01

Children's accounts can grab your young ones' interest while earning it, writes Teresa Hunter

ONE of the best presents you can give children this Christmas is a saving habit, so why not let Santa bring them an account with a little nest egg in it?

Youngsters love having their own money in their own account, and many children's accounts come with free gifts such as calculators, watches and free days out.

But it is important to choose an account with a good interest rate. Banks and building societies take their young account holders seriously and tend to play fair with kiddies by paying a decent return; the reasoning being that keep them happy at seven or 11 and you'll have them as a customer for life.

Halifax Children's Regular Saver is a favourite, paying 10% on regular monthly deposits of between 10 and 100. It is designed to help teach youngsters of the rewards which can come by putting a little bit by as often as they can.

The Yorkshire's Treasure Bond pays 6.35% fixed until the end of 2008 on minimum sums of 100, or 6.15% for instant access.

Financial information group Moneyfacts spokeswoman Lisa Taylor argued: "Encouraging children to save and manage a bank account can be an invaluable gift for later in life. Learning about money matters and the basics of banking can be a lifeline when you are older."

Sue Hannums of financial advisers AWD added: "We advise everyone that in the current climate they should make sure they are earning at least 6%, and that goes for children's accounts as well."

When it comes to choosing a suitable account, the interest rate is important, but so is convenience. For children to get the most out of the learning experience of handling their own money, they need a branch nearby where they can go initially with their parents and then later by themselves.

Taylor explained: "There are some great rates to be found, but make sure the account suits the needs of your child too. A local branch might give them the opportunity to interact with their bank on a personal level. Do they need a cash card?"

Tax is another key issue. Children have their own personal allowance and so can earn 5,225 a year in interest tax-free on money given to them by relatives and friends. However, they can only earn 100 interest on money given from each parent. Furthermore, if they exceed the 100 limit then the interest on all the money given by a parent is taxed, so hand over large sums with care.

The return from the savings can be added without the deduction of any tax by filling in an R85 form, normally available in bank and building society branches.

Hannums advised: "There are some fairly competitive accounts out there, but you must pay attention to the tax situation. Always ask for an R85 form to make sure tax is not stopped. Otherwise it will have to be claimed back, which can be a lengthy and laborious process."

Halifax Save4it, currently paying 6.05% on balances of 1 to 5,000, is operated via a passbook and comes with a free calculator, coin bank and passbook wallet. But there are no free gifts with the Regular Saver account.

The Yorkshire doesn't offer any gifts either, but pays a return of 6.15% on its One Day account and its Freedom account designed for teenagers, which comes with a cash card. However, parents can set a monthly limit on what can be withdrawn.

The Skipton pays 5.75% on its Leap account, available to anyone under 26, which can be opened with a minimum of 10. They then receive a passbook and can pay as little as 1 into the account each time.

It also comes with free gifts: every time children put money into the account they receive a sticker in their passbook, and they get the freebie when they have 'earned' a certain amount of stickers. They have to make eight deposits to qualify for the first gift. Younger children get a backpack and a watch, while older ones get a 'city' bag and a wallet.

Nationwide's Smart account is a branch-based passbook account available to under-17s and currently pays 6.04%. Those aged over 11 can also have a cashcard and view their account over the internet.

The account comes with special offers on days out, books, magazine subscriptions and activities. For example, five-year-olds and under can get two-for-one admission at Sea Life centres and at Camelot Theme Park, one free session at Tumble Tots and 30% off selected Dorling Kindersley books

Six to 10-year-olds qualify for two-for-one bowling and can buy two computer games for 15.

Royal Bank of Scotland offers teenagers a Revolve current account paying 3.15% in an attempt to help them develop a sense of independence in managing their own money.

It comes with a Solo bank card which can, for a 5 fee, be personalised with a picture of the customer's choice, including exclusive EMI album covers featuring artists such as Lily Allen, the cast of High School Musical and The Thrills. The card can be used in cash machines and shops.

Account holders can also download three free ringtones when topping up a mobile phone six times at any NatWest, RBS or Tesco cash machine, enjoy discounts on a Young Persons Railcard and at Phones4U, and get two-for-one offers at Vue cinemas.

Mark Worthington, NatWest's head of youth banking, said: "The earlier young people learn about managing money, the easier it is for them when they become adults. This is an ideal age to learn about using a PIN to buy things, what a bank statement means and checking how much money is in the account before shopping."

Girls' gifts will grow with them

FOUR-year-old Morven and sisters Iona, three, and Rona, one, are lucky girls, and not because Santa is bringing them a Barbie, a Peppa Pig and much more (they hope), writes Teresa Hunter.

Their good fortune will last well beyond the festivities because mum Annette Gove from Dunoon opened savings accounts in each of their names.

She picked the Yorkshire Building Society One Day account paying 6.15%, having also deposited the children's child trust funds there.

Annette, 34, said: "We put the children's Christmas and birthday money in their own accounts, but our aim is to leave it there until they go off to college or want to buy a first home.

"It is certainly not being put aside for them to go out and spend whenever they feel like it. If they want something when they are older, I hope they will work to pay for it."