Children’s savings accounts explained

Teaching children how to save and manage their money is an invaluable lesson for later life. Whether it’s a long-term options such as a fixed rate bond or a Junior ISA, opening a children’s savings account is a great way to help your child or grandchild become financially responsible.

Although we don’t currently offer specific children’s savings accounts at Raisin UK, on this page, you’ll find out how children’s savings accounts work, why you should consider opening one and the tax implications of doing so. We also summarise some of the different types of children’s savings accounts, including easy access accounts and fixed rate bonds, so you can make an informed decision about which is the right account for them.

Children’s savings accounts are similar to adult savings accounts and are designed to specifically allow you a simple and safe way to save for your child, or allow your child to save their money when they’re old enough.

Like adult savings accounts, there are also different types of savings accounts for children, such as regular savings accounts, easy access accounts and fixed rate bonds (there’s more on the different types of child savings accounts below). You could also choose to invest in a Junior ISA, and you may have a child trust fund if your child was born between the 1st September 2002 and 2nd January 2011.

Children’s savings accounts tend to work in the same way as adult ones, although they do vary between banks and building societies, so it’s best to check all the details with the account provider.

Typically, a child savings account is controlled by parents or guardians until your child reaches a certain age (this age varies between accounts). 

Features specific to children’s savings accounts include the following:

• The best children’s savings accounts pay more interest than adult savings accounts – but you or your child may not be able to make withdrawals
• You can typically open a child savings account with just £1 for children up to the age of 18
• Children over the age of seven can normally control their own savings account

Different types of children’s savings accounts will help you meet your savings goals. If your goal is long-term, for example, you might be best opening the type of savings account that you won’t need access to, such as a fixed rate bond, as this type of account typically offers more competitive rates of interest and your savings will grow over time.

If your goal (or your child’s goal) is more short-term – perhaps they want to save their birthday and Christmas money to put towards something special – a better option might be a type of savings account they’ll be able to access when they’ve saved enough money.

These are the most common types of children’s savings accounts:

Regular savings accounts

Regular savers require you to save small amounts of money each month, normally over a fixed term. They typically offer better interest rates than easy access or instant saver accounts, but often won’t let you access your money (and if you need to, you may have to pay a penalty or lose your competitive rate of interest). You may also face a reduction in your interest rate if you miss a monthly payment.

Most regular savings accounts pay a fixed rate of interest, so you’ll know how much you’ll earn as the rate won’t change during the term of your account, although you will find regular savers which offer variable interest rates, too.

Children’s easy access accounts

Easy access savings accounts, also known as instant savers, are the most flexible type of account, as you have the freedom to add and withdraw money at your convenience.

While easy access accounts typically offer lower interest rates than regular savers and fixed rate bonds, they do allow instant access to your money, making them a great short-term savings option.

They’re also a good way of teaching your children how to save, as you can get them involved in managing their savings account regularly.

Fixed rate bonds

A fixed rate bond savings account might be right for your child if you can lock a lump sum of money away for a set time and want a competitive rate of interest that won’t change from the day you open the account until the end of the fixed term, which is typically anything between six months and five years, or until your children reach the age of 18.

Fixed rate bonds are a great choice if you want to build a substantial savings pot for your child’s future and won’t need to make any withdrawals for the duration of the fixed term.

While there aren’t many fixed rate bonds specifically designed for children, many ‘adult’ fixed rate bonds are open to savers of any age, including those on the Raisin UK marketplace.

Notice accounts

A notice savings account requires you to provide notice – typically between 30 and 90 days – to your bank or building society when you want to withdraw your savings. They feature a mix of the benefits of other types of savings accounts, with interest rates comparable to fixed rate bonds (although you may find that this rate is reduced if you withdraw money before the notice period you have given), coupled with similar levels of flexibility of an easy access account.

Junior ISAs

Junior ISAs (Individual Savings Accounts) offer a long-term, tax-free way to save for your children. Savings are locked away until your child turns 18 – while they can control the account from the age of 16, they can’t access their savings until they are of age and their Junior ISA converts into an adult ISA.

The annual tax-free allowance for a Junior ISA is £9,000 (2022/23), and there are two types of Junior ISA; a cash Junior ISA and a stocks and shares Junior ISA.

One of the most common reasons for opening a child savings account is to save for your children’s future. If you open a savings account for your children at birth, the money you (and they) save until they turn 18 could mean that they start adult life on a solid financial footing, perhaps being able to afford a car, university tuition fees or a house deposit.

You may also want to open a children’s savings account for short- or medium-term goals, such as a big-ticket item like a computer, tablet or musical instrument that you want to encourage your child to save for themselves. 

Your reasons for opening a savings account for your child will inform what type of savings account you choose to open.

Children must be at least seven years old before they can open a savings account for themselves, although this varies between different banks and building societies, so it’s worth checking the details. If your child is under seven, a parent, guardian or grandparent must open and run the account on their behalf. You can also still choose to do this if your child is over seven.

Another thing to check is when your child’s savings account will end, as some end before a child is 16 or 18 – when they turn 11 or 13, for example.

What is needed to open a child savings account?

You will need various documents to open a children’s bank account:

• Their birth certificate
• If you’re opening an account with a bank or building society you don’t bank with as an adult, you’ll need to provide your proof of ID, such as your passport or driving licence, as well as a bank statement or utility bill

Before the pandemic, opening a child savings account meant visiting a branch. Now, you can open an account online, depending on the provider, by providing a photo of your child, photo ID and proof of address.

Can I open one savings account for two or more children?

No. Like adult savings accounts, a child savings account is unique to them. So if you want to save for more than one child, you’ll have to open separate savings accounts for each of them.

At what age can a child open a children’s savings account?

Your child usually has to be over seven years of age to open their own child savings account. If they’re under seven, a parent, guardian or grandparent should open the account on their behalf, and will normally administer the account until the child reaches the age of 16. This will depend on the type of account you open and the service provider, so it’s best to check the specifics.

When can a child take over control of their savings account?

When a child can take control of their savings account really depends on the type of child savings account you open and the provider you open it with.

There are two instances, however, where the age is set in stone. If your child has a child trust fund or a Junior ISA, they take control of their account when they turn 16, although they can’t access their money until they turn 18.

Can grandparents open savings accounts for grandchildren?

Yes, grandparents can open savings accounts for their grandchildren. You’ll need to provide the correct documentation to open the account, including your grandchild’s birth certificate and your ID and proof of address if you’re opening an account with a bank or building society where you’re not a customer.

If you want to contribute to your grandchild’s savings, you can gift up to £3,000 per child per year without paying inheritance tax (although it’s worth noting that no tax is due on gifts made more than seven years before your death). If you don’t gift the full £3,000, the difference can be carried over for one tax year.

How much you can pay into your child’s savings account depends on the type of account it is. Some children’s savings accounts have a maximum amount you can contribute, either in total or over a set amount of time. For example, regular savers often require you to deposit a set amount each month, and Junior ISAs cap tax-free savings at £9,000 per year (2022/23).

It’s also worth bearing in mind that you can only gift up to £3,000 per child per year without potentially being liable to pay inheritance tax. 

Some children’s savings accounts don’t limit how much you can contribute so it’s worth checking the details before you open an account.

Can a parent take money out of a child’s savings account?

When you open a bank account for a child, the account is in their name, which means they legally own the money. As a parent, you aren’t allowed to withdraw money from your child’s savings account.

The short answer is yes, children may have to pay tax on their savings as they are taxed in the same way as adults – but most children simply don’t earn enough interest to need to pay tax.

How does tax on children’s savings accounts work?

In the 2022/23 tax year, children can earn up to £18,570 in interest on their savings without paying tax, as long as they don’t have any other income. This £18,570 is made up of their personal allowance (£12,570), starting savings allowance (£5,000) and their personal savings allowance (£1,000). 

Tax on money given by parents, friends and family

Anyone can give a child any amount of money, but the rules are different if you’re a parent or step-parent: if your child’s savings generate more than £100 in interest per year, they are taxed at your tax rate, unless their savings are in a child trust fund, Junior ISA or children’s bond.

This rule only applies to parents and step-parents. Grandparents, friends and other members of your family can give your children any amount of cash – but they will need to watch out for inheritance tax implications.

If you’re entitled to benefits, they may be affected by the amount of money your children have in savings if you can access their accounts, since some benefits are means-tested. It’s important to declare these savings accounts. 

Means-tested benefits that may be affected by the amount of money in your children’s savings accounts include the following:

• Universal Credit
• Pension Credit
• Child Tax Credit and Working Tax Credit
• Income-based Jobseeker’s Allowance
• Housing Benefit & Council Tax Support

Learn more about the savings and benefits rules.

Can I still get Universal Credit if my children have savings?

There is a possibility that your children’s savings will affect your Universal Credit. However, it won’t be affected if your child has a Junior ISA or less than £3,000 in savings.

You aren’t allowed to move any money you have into your children’s savings accounts so that you can still claim Universal Credit. This is called ‘deprivation of capital’ and will count against you in means-testing.

Opening a savings account for your child teaches them that if they put their money in the bank, it will grow and they’ll have more money to spend in the future. It also helps them learn good financial habits from a young age, not to mention understanding how money works, and these are things they can take into adulthood.

These tips will help you teach your children how and why they should save money:

1. Choose a savings account together. This will give your child a vested interest in how much money they’ll earn, and they can check in on their savings each month.
2. Tell them their money is safer in a bank. Putting their money into a savings account means their deposits are protected, but keeping it at home may mean it could be stolen.
3. Explain the difference between saving their pocket money in a piggy bank and putting it into a savings account. You can do this by telling them that when they put their cash in a piggy bank, that’s it, it just sits there. If they put it into a savings account, they’re lending their money to the bank, who need to pay them a little bit more for this privilege.
4. Incentivise them to save. If they agree to save some of their pocket money, you could match what they save. 
5. Create a savings chart. This works well if your child is saving for a special treat, as they’ll be able to see how near they are to being able to afford it.
6. Be their example. You could show your child how much you save, how much you have in your savings pot and how it’s grown over time. This will help them understand that saving money is important for you, too.

The children’s savings account you choose will depend on your and your child’s financial goals, and if you’ll need to access their savings.

For long-term savings that build a substantial pot of money for their future, you might want to consider fixed rate bonds, which pay competitive rates of interest over set amounts of time.

To meet short-term goals, an easy access account will provide more flexibility, but lower interest rates.

It’s important to shop around, and you might find that less well-known banks and building societies or challenger banks offer better interest rates.

From birth to big milestones such as graduation and weddings to buying their first car or house, the cost of being a parent never stops. Although building a strong savings account can reduce the stress of the financial burden of raising a child, what is the true cost to the bank of Mum and Dad and how much of this do Grandparents contribute?

We carried out research to find out the real cost of raising a child in 2021 as a parent or grandparent by analysing data from the Office for National Statistics (ONS), the Child Poverty Action Group (CPAG), as well as our own survey.

It costs £174,000 to raise a child in the UK

Depending on how many children you have, it can cost parents in the UK up to £174,290.48 to raise a child to 18, fluctuating from £140,505.04 to £174,290.48, according to the CPAG 2020 report. But, as children stay at home longer and later into adulthood, return home after university and look at reducing costs by moving to the family home to save for a house deposit, the true cost could be much higher.

From childcare, taxes and housing costs to higher education, the cost of creating a family covers more than the day-to-day. Using research from ONS, the average British home spends around £2,458 a month or £29,496 a year keeping a roof over their heads, transport, as well as feeding and clothing their family.

At £9,000 a year, 11- 13 is the most expensive age

It isn’t just how much a child is going to affect parents and grandparents in total financially, but at what ages that rainy day savings account is going to be called upon more frequently.

The initial investments for a newborn to the age of one sets back a family £14,468.48 a year, reducing to £8,098.48 from ages three to four. Reducing down to £7,010.64 through to the age of ten.

As the child transitions into secondary school, there is a big jump in annual cost per age group, possibly due to changes in school uniform, hobbies and interests. Hitting the heights of £9,087.52 until they hit 13 and level out, costing £4,486.56 per year until they hit adulthood.

With 11 – 13 as the most expensive age, we can speculate that an increased need for finances correlates with a high period of growth and change for the child. Their spurt of independence and development of their own interests needing more disposable income, affecting the child, as well as the parents.

Grandparents contribute £5,000 per grandchild

But the costs do not just fall on the parents, grandparents are spending on average £4,676.94 on each grandchild supporting them before adulthood. But it doesn’t stop there, grandparents are integral to their grandchildren being able to hit those major life milestones.

When it comes to grandchildren buying their first car, 4.8% of grandparents are likely to contribute as well as 3.7% contributing towards their first home. The data coming from our Raisin UK survey reveals that bestowing financial aid does not stop at the grandchildren’s major life events, the highest percentage coming from grandparents’ last will and testament, with a whopping 33.5% leaving savings to their grandchildren. Whereas 48.7% let none of their pension go to their grandchildren.

Grandparents who spend 40 hours a month with their grandchildren give them the most money

It isn’t just money that grandparents are expected to contribute, with their time being an asset too, but where does time outweigh financial contributions or reduce them?

Interestingly, our survey has revealed that the less time grandparents spend with their grandchildren, the less they are likely to contribute financially, causing a correlation between absence and decreased spend.

The grandparents who spend between 36 – 40 hours a month with their extended family providing £873.41 a year per grandchild, a 1285% increase from those who never spend time with them.  An alluring peak ahead of those who spend more than 40 hours with their grandchildren, possibly as a support network and reliable childcare provider.

Methodology

Our bank of Mum and Dad data is created using our Raisin UK survey to find out the average time spent with their grandchildren and how many of them contribute to milestone costs. We also used CPAG data to find out the cost of having a child, by the year or in its entirety. We also used data to find out the average UK household spend.