Whether you want to ensure a good financial start for your child or you are just looking at starter accounts for juniors, the inevitably long amount of time that your money is invested for means that your child is likely to reap the benefits in accumulated interest. However, to get the most out of your savings, you need to make sure that you choose the right account.
The best advice when considering your options is to remember that the earlier you start saving, the more you will earn in interest; regardless of substantial amounts, if you can ensure a small amount is deposited on a regular basis, with the right account you will see your savings grow.
How much do you have to invest?
Children's accounts differ greatly in relation to how much can be invested, how often and whether or not you can withdraw without notice. All of these factors will affect how high an interest rate you will receive.
Today the children's savings account market is more crowded than ever, which is great news for consumers. There are many providers that are all jostling to be the provider of choice, so be sure to shop around to see what is on offer. You should bear in mind that it is not only high street banks that offer these accounts. There are also a fair few online providers that offer market leading interest rates.
- Compound interest - this means that the amount of the interest paid out each year is added to the basis amount of savings for the next year, making the amount of interest each year higher.
- No tax - the amount gained is free of tax as soon as the interest amount is less than the personal tax allowance for the current tax year. You will need to fill in R85 - a form that will give your child tax free savings and R40 if you've already overpaid.
1. Junior ISAs - for all babies born after the 3rd Jan 2011, the government introduced this Junior ISA. This account allows up to £3,600 per year paid in tax free. The money cannot be accessed until you child reaches the age of 18. This is suitable for kids that leave school at the age of 16 or 17 and become taxpayers at an earlier age. Currently you can get up to 2.95% AER on a Junior ISA.
2. Instant access children's savings accounts - this account allows you access to the money whenever you want. You can deposit and withdraw money as and when you wish. The account is usually administered by an adult until the child reaches 18 years of age. However as with any instant access savings account, you shouldn't expect a high interest rate.
3. Set notice children's savings accounts - these accounts pay higher rates than the easy access ones. You will need to give the bank notice (between 1 and 3 months) every time you plan to withdraw money. Whilst these types of accounts can be less convenient if you need the money sooner than a month, they aren't meant to be ran as an account that has frequent withdrawals.
4. Fixed term children's savings accounts - these accounts will usually lock up your child's savings for fixed terms such as 1, 2 or 3 years. The rates paid out with them are higher than on any other account. They won't be suitable if you are planning to regularly put money in but are perfect for lump sums. Fixed term children's savings accounts don't take into account the inflation so they are not good in volatile economic situations.
5. Regular children's savings accounts - you can choose from fixed or variable rates and pay in regular amounts each and every month.
Well known banks like Halifax, LLoyds and Barclays offer such type of accounts. We recommend you to have a look around and compare interest rates, conditions and offers. The best place we found for comparison is MoneySuperMarket.
You may also want to read about: Savings Accounts