How children's savings accounts work

Children's savings accounts operate like any ordinary savings accounts, in the sense that money is invested in the account and accrues interest in accordance with the terms and conditions of the account. Unlike most other types of savings account, until the child in question reaches the age of seven the account must be held in the parent's name with the child's initials attached. If your child is seven or older, you can open a children’s savings account in his or her name alone, which would mean that he or she would effectively have control over it.

Banks and building societies tend to offer better rates for children's accounts than they do most adult accounts, so it is normally worth opening one even if you don't have control over how your child uses it. We would caution you to be wary of any account that leads with a free gift, as these are normally there to distract would-be account holders from a low interest rate.

Tax allowances and children’s savings accounts

Children have their own personal allowance for tax purposes in the same way as adults do. So just as with adult saving accounts, as long as income from savings doesn't exceed the tax-free allowance, that income will be free of tax. Be sure to fill in a R85 Form (PDF - a Revenue & Customs form) when opening a children’s savings account for your child to guarantee the interest is automatically paid tax-free.

It is worth noting that should you, as a parent (or step-parent), make any contributions to the account that generates more than £100 interest (annually), that interest will be treated as parental income and will result in the relevant parent paying tax on it.

Remember each parent has his/her own separate limit – so Mum and Dad combined can make contributions which garner up to £200 in interest, tax-free. Interest earned on contributions made by the child or friends and relatives is not subject to this rule. So grandparents can contribute as much as they like and the interest won’t be taxed on your income.

You can find out more about this rule from the HMRC website.

National Savings Children's Bonds

National Savings Children’s Bonds are suitable for children up to 16 years of age. They can be purchased by parents and relatives in amounts of up to £25, up to a maximum of £3,000.

National Savings Children’s Bonds last for five years at a time, and not only is any interest tax-free, but if the bond is kept for the full five years a bonus is paid at the end. Once the child turns 16 he or she takes control of the bond and has an option to reinvest it in a further bond, again tax-free, until they reach 21.

While the interest rates are guaranteed, they are not great, particularly if the bond is cashed in early. Also, as children don't usually generate enough income to pay tax, the tax-free element of this savings vehicle is somewhat irrelevant. For this reason, National Savings Children’s Bonds are not amongst the most popular children’s savings products.

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Some important information about this page

We are normally made aware of changes to rates and products, but very occasionally changes may occur without our being notified. If you spot any mistakes or inaccuracies on our site, please contact us.

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