Saving for your children
When it comes to saving on behalf of your children, you can never start too early
Children’s savings accounts can be opened by parents or guardians on behalf of a child under 18. They are like adult savings accounts and usually pay some interest. You can start an account with as little as £1 for any child aged up to 18. Children over seven can manage their savings account themselves – depending on the account, they can take money out as well as pay it in.
Having their own savings account could help older children become more money aware and can encourage them to develop good savings habits that may continue into adult life.
Before your children are old enough to save some pocket money or birthday cash gifts themselves, you could save a little for them every month by setting up a standing order to build up an amount for them over the years.
There are a few children’s savings account options available to consider.
Easy and instant access accounts
These allow you to deposit or withdraw money at any time and can be varying lump sums.
| Advantages | Disadvantages |
| Money can be withdrawn whenever you or your child likes. Unless otherwise stated in the account terms, you should be able to make as many withdrawals as you like, without giving any notice. | You may have to pay tax on the savings interest. This will be the case if you, the parent, have paid money into your child's savings account and the interest exceeds £100. The entirety of interest earned will be added to your tax bill. |
| They can be a good way to teach your child about money. By managing their own savings, children can learn more about handling their own finances. | Interest rates are usually variable and can be lower than other types of account. |
Regular savers
These accounts are designed to encourage regular amounts every month.
| Advantages | Disadvantages |
| You don't have to pay in much. The top accounts usually allow a maximum of £100-£200 to be paid in per month. | There are usually stringent withdrawal limits. Withdrawals may either be unavailable, or you'll face losing interest. |
| They're ideal for parents who wish to drip-feed cash into their children’s account regularly. |
You may be liable to pay tax. The £100 rule applies to savings interest (see above). |
| The interest rates may be fixed for a length of time and tend to be higher than instant access accounts. |
They are not good if you want to make more sizable deposits. The maximum threshold for monthly payments may not suit everyone. |
Junior Individual Savings Accounts (ISA)
These accounts allow you to save or invest up to £9,000 each tax year, with the cash locked away until the child turns 18. At that point, the money belongs to them and will revert to a regular ISA.
| Advantages | Disadvantages |
| All money is tax-free. Like the adult ISA, all funds held within a Junior ISA wrapper are free from tax. |
There's an annual deposit limit so, if you want to save more cash than this, you'll have to look for alternatives. |
| Children can't take out the cash until they turn 18. This is good if you want it to remain saved to help with university fees or a house deposit for example. |
There's no government contribution. The government added £500 to each child trust fund (CTF) on opening, but this isn't the case for Junior ISAs. CTFs are no longer available to new customers. However, it is possible to switch a CTF to a Junior ISA. |
| The £100 rule does not apply to ISA savings. |
|
| Although the account must be opened by the child’s parent or carer, anyone can pay into it. |
National Savings & Investment (NS&I) Bonds
You can buy any whole-pound amount of bonds between £25 and £50,000, and every month each £1 bond is entered into a prize draw. When the child turns 16, they can have the premium bonds signed over to them.
| Advantages | Disadvantages |
| Parents and grandparents can buy premium bonds. Unlike many savings accounts that only allow money to be paid in by parents, premium bonds are a great way for grandparents to put money away. | You might not win any prizes; it's all down to chance. Specifically, there is a 21,000 to 1 chance of winning any prize. |
| Your child could win up to £1million. Every month, two lucky winners will get the jackpot. Many more will win prizes from £25 upwards. |
There is no savings interest. NS&I says there's an equivalent 1% prize fund rate on premium bonds, this is an average over the millions of bonds in the pot, taking in someone who wins £1million on their £100 investment, and others who've won nothing on their £10,000. |
| Winnings are tax-free, even if they win £1million. |
|
| You can deposit up to £50,000. If you have a lot of money to deposit but are restricted from the Junior ISA allowance and tax from savings interest, premium bonds could be the answer. Children may enjoy checking their bond numbers each month to see if they've won! |
Do children need to pay tax?
Like adults, children have a Personal Allowance for Income Tax – £12,570 for the tax year 2024/25.
If their annual income (including interest) is below this amount, they won’t have to pay tax on it.
Tax on money given by parents, friends, and family
You can give a child any amount of money, or invest it for them, but if you’re a parent or stepparent there are special rules.
If you have given your child money that earns over £100 a year in interest, dividends, rent or any other investment income, the interest will be taxed as if it were yours. This doesn’t apply to Junior ISAs or Child Trust Funds.
This doesn’t apply to anyone else – grandparents and friends are not restricted by the £100 rule. But there might be tax implications that they’ll want to consider. Giving cash at the wrong time or in the wrong way could end up affecting their tax status including Inheritance Tax (IHT).
The rules around ‘gifting’ can be complex and it’s key to keep clear records of what you give away. Always consider seeking advice before you start to make any such gifts.
Teaching children about money
There are many ways we can teach our children about money. Here are a few suggestions:
- explain the difference between real banks and piggy banks to your kids
- involve your child in choosing the account and encourage them to monitor the interest rate
- help them understand that putting savings in a bank ensures their money is protected
- agree on how much of their pocket money they’ll save versus spend.
Teaching children about money early on sets a valuable foundation for their financial future.
DisclaimersCrowe Financial Planning UK Limited is authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide independent financial advice. The information set out in this publication is for information purposes only and is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. It does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued. Any advice provided by a Crowe Consultant will follow only after consideration of all aspects of our internal advice guidance. Past performance is not a guide to future performance, nor a reliable indicator of future results or performance. The value of investments, and the income or capital entitlement which may derive from them, if any, may go down as well as up and is not guaranteed; therefore, investors may not get back the amount originally invested. The Financial Conduct Authority does not regulate Trusts, Tax or Estate Planning.
Please be aware that by clicking onto any links to third party websites you will be leaving the Crowe Financial Planning website. Please note that Crowe Financial Planning is not responsible for the accuracy of the information contained within the linked sites. |
