Savings Accounts for Children

Savings accounts for children often come with gifts or gimmicks but otherwise look and feel just like ordinary savings accounts . However, if you are opening savings accounts for children under the age of seven, the account will have to be in the parent's name with the child's initials attached. Once your child is over the age of seven he or she may hold an account in his or her own name.

Savings accounts for children often offer highly attractive rates of interest and most children will be able to benefit from interest paid gross because their income will be below the level of the personal tax allowance. Ensure this happens by filling in HMRC Form R85 when you open the account

Parents should beware, however. If the interest your child earns is more than £100 a year then it will be treated as parental income and taxed accordingly. The only way round this is to demonstrate that the savings that have accrued have not been contributed by you - interest on funds that have been given by friends and relatives does not count towards the £100 limit.

An alternative option to savings accounts for children under the age of 16 is National Savings & Investments Childrens Bonus Bonds. These bonds require you to invest for a five year period during which interest accrues tax-free and, provided the bond has been held for the full five years 'bonus' interest is added as well.

See also:

• Savings & Investments for Children - A Guide

Last Updated: April 2008 © Moneyextra.com

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