How to Save for your Kids

When it comes to saving, it's never too early to start, and setting up a children' account could be the perfect way to help your son or daughter understand the value of money from a young age. There is no minimum age at which an account can be opened, although most providers require a parent to open and run the account in their own name until a youngster is at least seven years old.

And, by persuading your offspring to put some of their pocket money - as well as cash received for Christmas - into this dedicated account, you can help develop a savings habit early in life.

Choose your account

Children's savings accounts work in a similar way to any other saving account, and, as with adult accounts, you can choose from easy access, fixed rates and regular savings.

The problem is that while there are a large number of children's savings accounts on offer, many of these pay paltry rates of interest.

With base rate languishing at a record low, it's not surprising that rates have fallen, but with many kid's accounts now paying less than 1 per cent on a £1,000 balance - there is little incentive to save on a regular basis.

Get in the regular savings habit

The good news is there are a few high-paying accounts available if you do a little research, and, as with the adult savings market, some of the best rates are being paid on regular saver accounts.

Halifax, for example, is paying 6 per cent on its Children's Regular Saver, while Principality building society is paying 5 per cent on its Dylan's Children's Regular Saver - provided you pay in at least £10 each month for 12 months.

But you do need to read the small print before signing up to a regular saver account, as they often come with a long list of terms and conditions - such as penalties for making withdrawals.

Elsewhere, Clydesdale bank is also paying a competitive 5.1 per cent on its Child Savings fixed-rate bond, but with this account you have to be prepared to lock your money away for five years.

What else is on offer?

Nonetheless, while these dedicated children's saving accounts may come with a raft of strings attached, they are paying significantly more than their nearest rivals.

Chorley and District building society, for example, is paying 2.9 per cent on its Foxley Fund account and Chesham building society is paying 2.55 per cent on its Treasure Chest Saver.

On the high street, Chelsea building society is paying 2 per cent on its Ready Steady Save account, and Skipton building society is paying 1.8 per cent on its Leap account.

Don't fall for the freebies

You can usually open a kid's account with as little as £1, but while it's easy to be tempted by the freebies that come with them, don't be too easily swayed - as you need to look beyond the marketing hype to unearth the best rates.

Finally, make sure you complete form R85 so your child can receive interest without having tax taken off.
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