Children's bank accounts
We are all becoming more conscious with regards to saving for our children's future. Young adults can no longer afford to pay their own way through university, or put a deposit on their first home. Therefore, more and more parents are looking to save for their children's futures from day one.
A new incentive has been introduced by the government to encourage parents and as a result, children, to start to save and make saving an everyday part of their lives. The incentive introduced is called a child trust fund and gives any child born after 1st September 2002 a £250 voucher to place in a savings account. Because this is a government incentive, it is also a political decision - there can be no guarantee that a change of government wouldn't see a change of policy. With a general election due in 2010, make sure you have used your entitlement by then just in case!
Looking for Children's Bank Accounts
Deciding where to place this money can be a little confusing and although good interest rates may be offered, make sure you read the terms and conditions as the high rate offered may only last for 12 months and there can be a minimum and maximum investment per year restriction. It is good practice to get your child saving even if you don't have a child trust fund to use. Getting them to put a few pence away each week will give them a good lesson for when they are older. Many bank accounts offer incentives such as piggy banks etc.
Banking options which you may consider are:-
Children's Banking Accounts
Often the easiest to find, as many high street banks do provide children's accounts, but as previously mentioned check how long the interest rate offered is valid for. Also some Banks are now offering Children's Bank Accounts which can be changed as your child grows up offering different facilities and benefits as they get older. You can also apply for a specific type of Bank Account which have been designed to appeal to your child, for example RBS offer a Rainbow Account for children which offers interest, the option for you to make regular contributions to your child's account by standing order and a Free Money Box to encourage your child to save. When Aged 7 to 10 a Cash Club Account is available where you can earn interest and bonus points and also withdraw up to £10 per week. Also offered is an account aimed at Age 11 to 18 years which offers interest and also lets you design the look of your cash card.
Even though this might not be an option which automatically springs to mind you can in many cases open a standard bank account for your child and this type of account may actually have a better rate of interest. Do check any restrictions such as minimum investment each month and of course age but certainly don't rule them out.
Children's bonus bonds are offered by National Savings and they are tax free. Other benefits are that they do provide guaranteed interest and also prize draw bonuses, they are designed for children and you can invest from £25 - £3000 per year for 5 years. They give a guaranteed interest payment each year, and a bonus payment at the end of the 5th year if the money is still invested. These make excellent gifts for any children you get birthday presents for.
It is essential to keep a record of any money added to your child's savings which came from a gift given by your family or friends. The reason for this is that children do actually have a tax allowance and gifts from people other than the parents are classed the child's own income. If you as a parent give any money or assets to your child which equals an amount of £100 or more then this is viewed as being your income and will be taxed on your highest tax rate. With regards to what proof you should ask for, it could be in the form of a card or a letter and must state the amount given along with who it is from, for more child tax issues see HM Revenue and Customs.
Planning for your children's future can prove to be very valuable, especially as the money you invest could be used toward your child going on to further education or even be used as a deposit for their first home.