The top five places to stash your child's cash

If you're struggling to find a home for your child's money, here are the five best places to stash that cash!

Savings rates seem to be all over the place at the moment. And the situation is the same for our kids. Indeed, you may be shocked to learn that most of the big High Street names are currently paying less than 0.5% AER to their younger savers.

This is especially annoying as while we may need access to our savings from time to time, kids rarely do. Couple that with the length of time you can lock away their cash for (and that save tax-free) and you'd think savings providers would be falling over themselves to offer the higher rates.

Still, there are some good accounts on there. Depending on how much your child has to save, how old he/she is and what he/she needs of a savings vehicle, here are five of my top picks:

1)  An instant access savings

First up: instant access savings accounts. You pay your money in when you like, withdraw it when you please and you'll earn a bit of interest for your trouble. Simple.

My pick of the instant access accounts is the Loughborough BS Young Savers+ account. You must be 16 or under to open one, you can deposit between £1-£20k, and it pays 2.2% AER.

2) A regular savings account

If your child gets regular pocket money, or you like to put some money away for him/her each month, a regular savings account could be ideal.

You pay in a regular amount into the account each month and your child will earn a preferential rate of interest.

Three important things to note - you can't open a regular saver with a lump sum, you can't make withdrawals during its term (usually a year) and should you fail to make a deposit each month the account is converted to a bog-standard savings account (with the rate reduced accordingly).

Top regular saver of the moment is from the Halifax. It pays 6% AER, and you can deposit between £10 and £100 per month.

3)  A Child Trust Fund (Cash)

If you have a child born after 1 September 2002 you will have been sent a £250 Child Trust Fund voucher from the government.

The vouchers can be used to open a Child Trust Fund (CTF): either a cash, stakeholder or shares account. Once paid in money cannot be withdrawn until the child turns 18 and up to £1,200 can be added to the account, each year.

Importantly, no tax is payable on CTFs, by either the child or his parents. Once the child turns 18 he can either withdraw the cash, or leave it there where it can roll into an ISA (and maintain its tax-free status).

Unsurprisingly, a number of parents choose to open a cash CTF - which is essentially a cash ISA for kids. It's simple, easy to understand and most providers offer one.

My top Cash CTF picks include one from Yorkshire BS, paying 3% AER (inc.a 12 month 0.7% bonus), or Earl Shilton BS, paying 2.85% AER.

Alternatively, if you live in the North East, Hanley Economic BS' CTF currently pays a table topping 5% AER - but can only be operated in branch.

4) A Child Trust Fund - (Shares)

On the other hand, if you're willing to take a punt on the stock market, a stakeholder or shares based CTF may be more up your street.

Shares based CTF

In this case you can choose your own individual shares or funds. The Share Centre is one of the providers that allow you to choose individual shares or funds for your child.

Stakeholder CTF

Alternatively, you could choose the easier option and select one of the many stakeholder accounts. The simplest are index tracker CTFs, which simply track the stock market. And as trackers have low charges your child keeps more of his profit, too.

Either way, if you choose to open a stock market based Stakeholder CTF, your child's cash will be moved to led risky investments when he or she turns 13.

My top pick for a CTF index tracker would be F&C's All Share Tracker - it's simple and with charges of 1%, cheaper than most of its rivals (which charge 1.5%).

Get free brochures on shares CTFs via lovemoney.com

5) A bond

Finally, the fifth option for your child's cash is to lock it away in a savings bond for a year or more.

Unlike regular savings accounts you can put lump sums into bonds - the disadvantage being that you will need to leave the cash untouched for at least a year to earn the advertised rate of interest.

And they usually pay a higher rate of interest than an instant access account.

There are a number of bonds on the market, some of which mimic the access afforded by the CTF by not allowing access until the child turns 18, while others last for 12 months.

Bonds that currently head up the Moneyfacts best buy tables include the Yorkshire Bank Child savings (5 year) bond, paying 5% AER on lump sums of £50-£250k.

R85

Don't forget that while your child may not be liable to pay tax, to receive gross interest, they still need to have completed an R85 form for each savings account (apart from CTFs) and have handed it in to the provider.

£100 rule

And finally, if the money going into your child's account was given by a parent, you need to be careful that the interest earned on it is not more than £100 per year. Earn more than this and you will be taxed on the interest at your highest rate (the Child Trust Fund is exempt from this rule).

However, this rule applies to each parent (so be clear who the money is coming from in each case) and with interest rates so meagre your child would need to have saved a lot before you fall foul of it!

Incidentally, if your child receives regular sums from relatives other than parents it may be worth opening a separate savings account to keep it absolutely separate for tax purposes.

So there you have it - five ways to save for your child. Don't let their money dwindle in a lacklustre account - move it today!

Get free brochures on child saving plans and CTFs via lovemoney.com

More: Your guide to Child Trust Funds | My son the millionaire