Trying to choose a savings account for your child? 5 things to consider

Saving money for a rainy day can be tough enough when there’s a cost-of-living squeeze – but new research highlights the struggles of parents who are also trying to build a nest egg for their child alongside their family savings.

UK parents have saved £4,001 on average for each of their children, according to a new study from financial services review website Smart Money People and its sister website, Be Clever With Your Cash.

Parents have typically saved £6,251 for themselves, which for nearly half (47%) is their rainy day or emergency savings fund.

With many families having more than one child, this could mean that the total value of children’s savings pots within some families is bigger than parents’ own rainy day funds.

Those who are actively saving for their children may potentially end up stashing away £13,500 by the time their offspring reaches 18, the research indicates.

Parents are putting away £750 each year for their kids on average.

When it comes to who’s in charge of savings pots, mums are more likely to say they set up an account for their child than dads, the research found.

However, only one in five (20%) parents are planning to look for a new children’s savings provider during this tax year as a quarter (25%) admit to being confused by the product choices currently on the market.

Furthermore, nearly a third of parents (28%) admit they find the process of moving financial products stressful, adding to their already busy admin lists.

The Bank of England base rate was left on hold in June, but with Consumer Prices Index (CPI) inflation having slowed to its 2% target in May, commentators have suggested that a rate cut is on the horizon.

Andy Webb, a money expert at Be Clever With Your Cash says: “Despite the Bank of England not moving the base rate this month, we can expect interest rates to come down at some point this year.

“Savvy parents need to think about their children’s savings now to make sure they are earning the most from these savings.”

Jacqueline Dewey, CEO, Smart Money People adds that, as parents are putting so much effort into building these savings pots for their children, they should consider if they are getting the most out of their savings provider.

“Many parents are prioritising their children’s financial futures, which should give them a great start in life,” she says.

Customer service, accessibility, and the quality of the tech the provider has to offer may be factors that parents want to consider, as well as the savings rates, she adds.

Some parents may be able to find a bit of spare time during the summer holidays to search around for a savings deal.

To help parents who are weighing up different accounts, Webb has some tips:

1. Check the opening requirements

“Many children’s savings accounts must be opened by a parent or legal guardian, but some banks allow other relatives to open an account,” says Webb.

“You’ll also need to check what documentation you need to provide, such as the child’s birth certificate and proof of your identity before opening an account. Watch out too as many will require you to open the account in a branch.”

2. Read the small print for any restrictions

Speaking about children’s savings accounts generally, Webb says: “Some accounts allow the child to access their savings once they reach a certain age, such as 18.

“Others may provide easier access or even allow withdrawals at any time, which can be useful for teaching money management skills early on.

“Check the specific terms of the account to understand the access conditions so it works best for you and the child.”

Some parents may perhaps be considering a Junior ISA, a type of long-term tax-free savings account for children.

In the 2024/25 tax year, the savings limit for Junior ISAs is £9,000.

With Junior ISAs, the child can take control of the account when they are 16, but cannot withdraw the money until they turn 18.

3. Consider any tax implications

It is often the case that there is no tax to pay on children’s accounts.

However, Webb cautions: “If parents are the main people adding funds to the child’s account, the interest earned may be taxed.

“This can occur if your child starts earning over £100 in interest in money you have gifted them as it is counted as part of the parent’s personal savings allowance – not the child’s.

“As interest rates have crept up, this is an important consideration for parents to consider.”

According to the gov.uk website, HM Revenue and Customs (HMRC) should be told if, in a tax year, a child receives more than £100 in interest from money given by a parent.

The parent could have to pay tax on the interest if it’s above their own personal savings allowance.

However, the £100 limit doesn’t apply to money given by grandparents, relatives or friends, or to money in a Junior ISA or a Child Trust Fund.

4. Compare interest rates and fees

Webb suggests: “Look for accounts that offer competitive interest rates to maximise the growth of the savings as well as checking any fees.”

He highlights Nationwide Building Society’s FlexOne Saver, an instant access account which pays a variable interest rate of 5% AER (annual equivalent rate) for up to £5,000. The deal is available for 11 to 17-year-olds who have a FlexOne current account with the building society.

Depending on how old they are, you could also get your child involved when looking for the best rate, so they get a taste of comparing deals early on in life.

5. Consider how you want the savings to be held

In addition to Webb’s tips, it could also be worth considering whether to hold the money as cash savings or as stocks and shares.

Investments are generally intended to be held over the longer term, so there is time to ride out the ups and downs of the markets. Some people may find they get higher returns from investments over the longer term, but the value of your child’s nest egg could go down as well as up.