Searching for somewhere to stash your child's savings? Then look no further.
With interest rates on savings accounts rapidly deteriorating, you may think there is no longer any point saving at all. But when it comes to children's savings accounts, the interest rates are considerably better.
At a time when the economy is on the rocks and finances are tight, it can be very difficult to find extra cash to put aside for your children. But saving for your children's future is still important and even if you can only spare a small sum of cash each month, with interest rates on your side, the amount can really build up.
It's worth remembering that children can earn £100 in interest, tax-free, every year on money given to them by each parent or step-parent. What's more, grandparents and other adults who give money to children do not have to pay tax even if the interest exceeds £100 a year.
To get your child's interest paid without tax, all you need to do is submit a form R85 to your lender's local branch. It's as simple as that.
Choosing an account
When it comes to deciding which account to pick, there are three important criteria to consider. Firstly, there's the interest rate -- ideally you want the highest rate possible.
Secondly, you need to consider ease of access. The problem with many regular savings accounts is that they're not terribly flexible, and often you can't make withdrawals without sacrificing the interest.
Thirdly, you should check out the minimum/maximum monthly payment required. In other words, you should find out the minimum amount needed to start the account, as well as whether there's a monthly cap on the amount you can invest.
It's also worth noting that most regular savings accounts require you to make payments every month, which, depending on your circumstances, may not always be possible.
So to help you decide which account is right for you and your child, I've picked out three top regular savings accounts for you to consider:
The best all-rounder - with a catch
The recently launched Child Regular Saver (issue 7) account from the Nottingham Building Society ticks all of the above boxes.
It pays a fabulous 7.5% AER which is fixed until December 2009. You only need £10 to open the account and can invest a maximum payment of £100 a month. What's more, it's very flexible-- you can make unlimited withdrawals without affecting the rate of interest paid, and you won't be penalised if you miss a payment.
The major drawback is you can only open and manage the account in one of the building society's 33 branches, which are based in and around Nottingham, Sheffield and Lincolnshire. So that means the account will be off-limits to a lot of people.
All Child Regular Saver (Issue 7) accounts mature on 15 December 2009. After this date, savings will automatically be transferred into a Young Savers' Club account which currently pays 3.2% AER.
The best rate
Knocking the socks off the Nottingham account in terms of interest rate is the Halifax Children's Regular Saver. The account pays a whopping 10% AER which is fixed for one year.
Similar to the Nottingham account, you only need £10 to open it, and can invest a maximum payment of £100 a month.
The downside is that you will need to be extremely disciplined if you use this account. If you miss a payment, or make a withdrawal, any interest will be paid at the current Halifax Save4it account rate which only pays 3.55% AER. That's a considerable amount of interest to miss out on.
After the 12 months is up, your child's savings and interest will be transferred into a nominated savings account.
The most flexible
Paying considerably less interest than the Nottingham or Halifax accounts is Stroud & Swindon's Children's Regular Savings account at just 4.05% AER. This rate is variable so you need to be aware it could change at any time, and in the current climate it is more likely to shift downwards, not up.
However, if it's flexibility you're after, this account could be an option. The account allows you to make up to three withdrawals per year without being penalised and there's also some leeway for missed payments. That said, if you miss three monthly payments in any six month period, the account will be switched to the Moneybox account rate which is currently only 2.5% AER.
You may also like this account if you're looking to pay in more than £100 per month, as it allows you to deposit between £10 and £250 each month.
Like the Nottingham account, the Children's Regular Savings account is designed for local customers. It must be opened and managed in one of Stroud & Swindon's 22 branches or 19 agencies across Gloucester, Wiltshire, Somerset and Monmouthshire.
Once your child reaches the age of 18, the account will revert to the Classic Gold account which currently pays such a pathetic rate, I won't even bother to mention it!
Which account?
Choosing whether flexibility or a high interest rate is more important to you will ultimately determine which account you pick for your child. In most cases, you will have to sacrifice one to have the other -- which is why I like the Nottingham account as it provides a good compromise.
Of course, the Nottingham account really falls down on the branch accessibility issue. So if you don't live in Nottingham, you may be better off with the Halifax account, thanks to its impressive 10% AER.
So why not get your child into the savings habit and open an account today? After all, if us adults are suffering from pathetic interest rates, our children may as well reap the benefits of decent ones!
More: The Best Savings Accounts For Children | Invest Early For Your Children