Good homes for children’s savings - I
15 August 2008
Piggy Banks
Whilst you may not consider this a good long term savings plan - using a good old fashioned Piggy Bank or money box for younger children is a good way to get them to start to save. Being able to see, hear and even feel your money grow as the box gets heavier is a very satisfying and memorable feeling. It’s fun to handle and shake the box and then spend time tipping it up so the coins fall out of the slot . Some banks and building societies still give out money boxes when you open children's accounts. When the amount gets sizable it can be put away into a savings account or plan. Money boxes make a great gifts too along with the first few coins to start things off.
Tax exempt savings plans
These accounts provided by Friendly Societies might be a good way to set up savings for those children that were not eligible for a CTF, although children with CTFs are of course still eligible too. Further information on CTFs can be found in The basics.
The account can help you build up a lump sum for any child through small regular payments. You can choose when the money is available for them, but the policy must run until they’re at least 16 and run for a minimum of 10 years.
Whilst they are essentially savings plans but have the added benefit of a small amount of life assurance protection
Friendly Societies have been around for hundreds of years providing savings for families and their popularity have stood the test of time.
Children’s savings accounts
Most banks and building societies offer ‘Children’s accounts’. Some will pay higher rates on small balances, but not all. So be careful that you don’t restrict yourself to just comparing the benefits of accounts that are named ‘children's savings’. The idea of the higher interest ‘hook’ is that very often once your child is with a particular bank or building society they are likely to keep an account open with them for life. You should also look beyond the freebies offered with some of these accounts too.
If it is possible to put a little away each month you may find better rates paid by regular saver accounts not necessarily aimed at children, there is no reason why most of these accounts cannot be put into a child's name, and held as a ‘trustee account’ on behalf of the child - until they are 18.
If you want flexibility then instant access might be best or if you prefer to put the money away for a longer time then a deposit account that has restricted access may be better and these tend to offer higher rates of interest.
Whatever type of account you choose, make sure you fill in an HM Revenue and Customs form R85, which is often part of the application for a children’s account. If you don’t then you will miss out on the interest being paid in full and the tax will be taken off rather than paid gross.
Remember that saving for a child will take a long time and that inflation may eat into the true value of their savings. To find out more about inflation see Tools and tips - the rule of 72
Some of the best rates on offer are found in the weekend financial press or on impartial financial information providers website such as Money Facts www.moneyfacts.co.uk
Cash ISAs
Anyone aged 16 or over can open a Cash ISA which operates pretty much in the same way as a bank or building society savings account that pays interest, only no tax is payable on the interest, even if or when the child becomes a tax payer.
A bit of research will help you find the best interest rates on offer but you need to decide if their rates are likely to remain competitive. The first bit is easy, the second much harder because you don't always know what the provider will do with their rates in the future.
If there is a guaranteed or bonus rate make sure you check how long that rate will continue for, sometimes it may only be for a few months. Banks also have a habit of attracting us with high rates when they launch a new account and then quietly cutting their rates at a later date by sending a boring letter that you throw in the bin because you think it's a circular.
As with savings accounts "Best Buy" tables are published regularly in the weekend money sections of many major newspapers and many financial websites will have similar information.
You can find out more about how financial gifts and children’s savings are taxed in The basics.
