So with the long run-up to Christmas soon to start, and the market all shook up with a change of best-buys, let me run through how to play it to perfection.
And don’t do this alone. If your kids or grandkids are old enough, sit down with them and talk them through each savings pick and let them choose – turn it into a fun financial game. This is crucial financial education – teaching them not just to save, but importantly where to save to get the most from their money.
If you’re looking for somewhere to put children’s savings, pick the account paying the highest rate.
On interest, the easy winner is the Halifax Kids’ Regular Saver (www.halifax.co.uk), for up to age 15, which pays 4.5 per cent AER fixed for a year. You can pay in £10 to £100 per month, and you are allowed to miss a month, but you can’t withdraw any money until the year’s up.
After a year, the rate drops, so get your child to set a diary reminder and move their money to a better account when it does.
If you’ve more to save then Saffron Building Society (www.saffronbs.co.uk) is similar at 4 per cent AER, though with this one you can make withdrawals. If you’re not near a branch, then it can be opened by post.
Nationwide (www.nationwide.co.uk) has just launched its new Future Saver account for under-15s. It pays 3.5 per cent AER, but only if the parent or guardian holds a Nationwide current account (not flex basic). Up to £5,000 can be saved in it each year, but only one penalty-free withdrawal is allowed from it.
If you don’t have the Nationwide current account, it pays 2.5 per cent, in which case the HSBC MySavings account (www.hsbc.co.uk) pays 3 per cent on up to £3,000 and it allows you to withdraw money as often as you like.
In the unlikely event that your little one has really big money to save, Skipton Building Society’s Children’s Saver easy access account (www.skipton.co.uk) pays 2.25 per cent on up to £50,000.
Some older children want accounts where they can spend on a card or online. If they’re aged 11-18, the Santander 123 Mini account (www.santander.co.uk) pays 3 per cent on £300-£2,000 and gives a debit card to use in shops – though if they’re under 13, you need to have a Santander account for them to open it.
Alternatively, the TSB Under-19s Account (www.tsb.co.uk) can be opened by 11 to 18-year-olds and pays interest of 2.5 per cent on balances between £1 and £2,500. It offers the choice of a cash withdrawal-only card, or a Visa debit card to use for cash, online and in store.
There’s also been a growing market in prepaid cards to spend in store and online for children aged over eight. These allow extra functions such as letting you set spending limits and monitoring their spending.
Yet they don’t pay interest and do charge a fee – so you have to choose between cost and functionality. Nimbl (www.nimbl.com) is £15 per year, Osper (www.osper.com) £30 per year and GoHenry (www.gohenry.co.uk) £36 a year.
For children under roughly age 18, an adult will need to open the account (with the child’s ID) and be a trustee or signatory on the account.
Most accounts including Santander and Nationwide require the adult to be a person with parental responsibility, though grandparents and other family members can pay in. With Halifax, grandparents are allowed to manage the account.
It’s also worth considering Junior ISAs (JISAs) – savings (or investment) accounts. You can save up to a set amount each tax year – £4,260 in this tax year – and the money is then locked away until the child’s 18th birthday (after that it’s theirs to do what they want with – regardless of why you saved it).
The big sell is that the interest is tax-free, but these days that’s irrelevant for most as: 1. Children pay tax just like adults, meaning they can earn £11,850 each year without paying tax on it. Unless they hit it big, early on X-factor that’s unlikely, so their savings interest won’t be taxed. 2. There is a rule that says kids can only earn £100 interest a year (so that’s about £3,000 saved in the top easy-access account) from money given by each parent. Above that it’s counted as the parents’ income and taxed at their rate.
This used to be an issue, but as now basic rate taxpayers can earn £1,000 interest a year without paying tax on it (or £500 for higher rate tax payers) most adults don’t pay tax on savings either – so unless you’ve a shedload of savings this isn’t an issue.
So Junior ISAs are now only worth it for the wealthy or those who want to use it as a way to lock money away until their kids turn 18. The top rate currently is the Coventry BS (www.coventrybuildingsociety.co.uk) paying 3.6 per cent. If your savings Junior ISA pays less, you can apply to the Coventry to have it transferred.
Those whose children have Child Trust Funds (CTFs) can also transfer them into Junior ISA savings, the same way. That’s worth doing as CTF rates are far lower. There are more than one million dormant CTFs at the moment, so if your child is aged seven to 16 it’s worth checking if they have one. You can use the special tool on www.hmrc.gov.uk. Martin Lewis is the Founder and Chair of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip.