Regular, fixed-rate or instant access: the best children's savings accounts

Halifax has increased rates on its Kids' Monthly Saver account to inflation-beating levels

Halifax has increased the rates on its regular and instant-access children's savings accounts, providing parents with new ways to help their offspring.

For parents who can save every month, Halifax Kids' Monthly Saver account now pays 4.5% AER, comparative with many adult accounts and comfortably beating inflation.

Children’s savings accounts work in a similar way to adult accounts – although interest rates tend to be higher, as you’ll soon see.

Much like traditional savings accounts, there are three main types: regular, fixed-rate and access. Each has their own benefits and drawbacks.

Before we delve into these, let's clarify how these accounts are taxed. 

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A quick note on tax

It’s a bit of a myth that children don’t have to pay tax. They're taxed just like adults but equally qualify for the same tax-free allowances.

Aside from the Starter Savings Allowance and the Personal Savings Allowance, children also have a Personal Tax Allowance up to £11,000, so if their annual income including interest doesn’t exceed this, they won’t need to pay tax.

However, to stop parents using their child’s personal tax allowance as an extra one for themselves, anyone who has given their child money that earns over £100 a year in interest, dividends, rent or any other investment income, will be taxed as if the interest is theirs.

This doesn’t apply to money given by anyone else, like grandparents or friends.  

Regular savings

Regular savings accounts – where you make monthly deposits – generally pay higher rates of interest. However, your interest rate might be reduced if you miss payments.

Here are the best deals on the market right now.

*For children aged 11-17

Halifax's account has the highest rate in the market, although access isn't allowed until after 12 months. 

Savers are expected to pay in between £10 and £100 each month by standing order. Helpfully, the account will stay open and you won't lose the top rate if you miss a payment.

Saffron's regular saver allows withdrawals at any time, but can't be accessed online. 

Want a savings account for you? Compare some of the best on the market with loveMONEY today

Instant access

Instant access deals are good if you don't want to lock your money away also want to make regular deposits (such as putting birthday and Christmas presents). 

What's more, the rates on children's access accounts are far more generous than those available to adults.

*The minimum age for opening is 7. 

** Applicants must already hold a building society/bank product

Santander's 123 Mini Current Account is intended for children aged between 11 and 17.

You won't earn its headline rate until you've got at least £300 in the account.

Adults can open an in-trust account for children aged under 11, but this must be done in-branch.

Fixed-rate savings

Returns on fixed-rate savings accounts are currently lower than for some instant-access accounts and for this reason, we are reluctant to recommend them. 

There is a risk that you could lose out if interest rates start rising in that time and you’re stuck on a not-so-desirable deal.

You should also check out traditional fixed-rate accounts to as there doesn’t tend to be a minimum age limit, so you can open up an account for a child, with you as a trustee.

Both of these accounts let you lock your money away for between one and five years, with interest rates steadily climbing over the longer terms.

Compare even more savings accounts at the loveMONEY savings and ISA centre

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