Putting money away for your grandchildren to enjoy when they are older offers a plethora of benefits. As well as helping your grandchildren to save for the bigger life expenses such as university, a house deposit or a wedding, teaching the younger generation now about money can ensure they become financially savvy at an earlier age.
With interest rates currently at an all-time high, it’s never been a better time to open a savings account either. Furthermore, the interest earned with children’s savings accounts is not taxed the same if a grandparent, rather than a parent deposits money in the account.
However, as with regular savings accounts, children’s savings accounts are subject to different interest rates and rules, which could make one account more suitable than another.
Here is an overview of some of the more popular children’s savings accounts on the market that, as a grandparent, could offer a fantastic way of helping your grandchildren financially.
Barclays Children’s Regular Saver
For the princely sum of £1, you can open up a children’s savings account with Barclays. Though, something to note is that this account previously offered an interest rate of 3.5% as advertised by Martin Lewis. At present, the interest rate stands at just 1.87% AER.
The advantage of opting for the Barclays Children’s Regular Saver is that there’s no minimum balance the account must hold at any time, nor any minimum monthly payments. There’s also no upper limit on the amount of money the account can hold, and money can also be withdrawn at any time without notice.
When the child reaches 18, the account will convert to an adult instant access account. You’ll also be given notice just before this happens, so you can decide to keep the account or withdraw all of the money.
Interest rate: 1.87% AER
H2: Halifax Kids Monthly Saver
Offering a fantastic 5% AER, the Halifax Kids Monthly Saver account is one of the best savings accounts for children on the market at present in terms of interest rates. What’s even better is that the interest rate has been fixed for at least the first 12 months from opening.
Suitable for children aged 15 or under, this account allows you to deposit between £10 and £100 each month via a standing order. So as a grandparent, this offers plenty of flexibility to contribute between £120 and £1,200 into their account each year.
Money can only be withdrawn from the account when it is closed, so it’s worth keeping an eye on that interest rate over time to see whether it’s worth continuing with Halifax, or whether it would be better to switch to an alternative instead.
Interest rate: 5.00% AER
HSBC Premier MySavings
Available for children aged between 7 and 17, the HSBC Premier MySavings account misses out on those very early years. Though, if your grandchildren are slightly older, one advantage here is that the upper-age cut off rate is more generous than some providers.
An account can be opened from just £10, and the account holder will receive a debit card. Again, when it comes to financial education, starting off with a debit card as a young adult is a fantastic way for your grandchildren to learn how to manage their money.
If you happen to have an HSBC account and are the parent or grandparent of the child, you’ll also receive additional product benefits.
Do be aware though that the attractive interest rate of 3.50% AER dips down to 1% AER (gross), on balances over £3,000.
Interest rate: 3.50% AER
Santander 123 Mini
The Santander 123 Mini children’s savings account can be opened by an adult if the child is under 13 years old, making it ideal for grandparents who want to start saving from an earlier age. Though, the adult who opens the account must be a Santander account holder and must also continue to manage the account on behalf of the child until they turn 18.
The 3% AER interest rate is certainly attractive, though this only applies when the balance is between £1,500 and £2,000. Interest will only be applied for the first £2,000, and not any subsequent deposits. So, it may not offer the best returns overall.
One perk though is you’ll have the option of having a Santander contactless debit card or a cash card, so long as the account is not held in a trust.
Interest rate: 3% AER
TSB offers a savings account catering to children aged between 11 and 19, so once again missing out on the early years, with a focus more on supporting your grandchildren as they become young adults.
Though, this option may just be the hidden gem of the bunch as the perks have been geared towards modern day teenagers. For instance, getting a debit card to use in shops, the ability to use Apple Pay, Google Pay and best of all, receive discounts on driving lessons as well as roadside assistance with the AA once the account holder passes their test.
The interest rate of 2.50% AER applies on the first £2,500 deposited, with any additional balance only benefiting from a 0.01% interest rate.
Interest rate: 2.50% AER
Virgin Money Jumpstart Account
Offering the ability to open this account for children as soon as they are born, the Virgin Money Jumpstart Account requires just £1 to open.
Granted, at just 0.30% – 0.40% AER, the interest rate is not as attractive as the other options. But that’s because several children’s savings accounts have disappeared from the market lately, and this includes the range that Virgin Money did offer. If interest rates come back down, this could change so it’s worth keeping an eye out. Though, it’s worth noting that the interest rate will climb the more you put in.
Children can operate their own account as soon as they turn 11, so long as an adult agrees. So once again, it offers a great option to help school your grandchildren on how to manage their money.
Interest rate: 0.30% – 0.40% AER
Children’s Saving Accounts FAQs
We’ve answered the most common questions about children’s savings accounts below.
Have any other questions? Leave us a comment below and we’ll get back to you.
What Do You Need To Open A Children’s Savings Account?
This all depends on the bank in question. Often, you’ll require proof of ID for both yourself and the child. You may also need to prove the relationship to the child, which may also mean you need to open the account with the permission of the child’s parent.
Which Is The Best Children’s Savings Account?
In terms of interest rates at the time of writing, the Halifax Kids Monthly Saver offers a fantastic incentive to get saving for your grandchildren, offering 5.0% AER. Though, it’s always worth doing your research, particularly to see if your own bank offers any incentives for opening a children’s savings account with them as an existing customer.
Are Children’s Savings Accounts Tax-Free?
There is usually no tax to pay on children’s savings accounts unless they earn more than £100 in interest from money deposited into the account by a parent. As a grandparent, you are not subjected to the same taxation rules which is a huge plus.
Children are also entitled to the £12,570 tax-free allowance per year that adults are. With all the tax-free allowances added up, children would be able to earn £18,570 for the 2022-23 tax year. If you plan on depositing more than £18,570 per tax year into a children’s savings account, it may be subject to taxation.
Can I Open A Savings Account For Adult Children?
Once a child reaches 18, it is no longer possible to open a savings account in their name. Though, talking to your bank or financial advisor will offer up the best solution, as the next best approach is very much dependent on your personal circumstances.
What Happens To My Child’s Savings Account When They Turn 18?
Some banks will automatically convert a children’s savings account into a regular current account once the child turns 18. In other cases, the account may be closed. You will usually be notified before either of these scenarios happen so that you have time to plan whether to withdraw the money or keep the money where it is.
Retirement Expert – Finance, Pensions And Savings Advice For Seniors
Deciding to open a savings account on behalf of your grandchildren is a wonderful investment into their future you can be sure they’ll appreciate, especially as they learn the value of money.
We hope the above options have given you food for thought. Here at Retirement Expert, we talk about all things senior living and advice. Our article on the best savings accounts for grandchildren is part of our finance and pensions series. Be sure to check out our other articles from this topic cluster, and bookmark our website so you’ll always be able to find us.
Have any other topic ideas for us, or perhaps know of some other savings accounts for children that offer a great deal? Leave us a comment below.