Choosing a junior financial savings account is not kid’s play: SYLVIA MORRIS

Opening a savings account for your child or grandchild is a no brainer – but picking the right one is far from straightforward.

A host of banks and building societies offer accounts, under names such as Junior, Child or Young Saver. 

But they have very different uses – and tax implications – which can make it confusing for adults trying to choose one.

Some are designed to help teach children to save their pocket money, while others are intended for parents and grandparents to put larger sums aside for the youngsters.

Confusing: A host of banks and building societies offer accounts, under names such as Junior, Child or Young Saver. But they have very different uses – and tax implications

When choosing an account, one of the first things to consider is tax. If a child is putting away a small sum every so often, tax shouldn’t be an issue. 

But HMRC says that if a child generates more than £100 interest for a parent, it falls under that parents’ tax rate rather than their own.

That means that if, for example, the parent is a higher rate taxpayer and is charged 40 per cent tax on their savings, so will the child, on anything they earn above £100.

The rules are designed to stop parents dumping huge sums of their own money in accounts in the names of their children to save tax. 

Junior Isas are a good option for saving tax-free. Children can put up to £9,000 a year into these accounts and all interest earned is tax-free. 

The disadvantage is that the money can’t be accessed until the child turns 16. However, this could be an advantage as it encourages long-term saving.

Whichever account type you chose, keep a sharp eye on the rates or you can end up earning a pittance – as little as 1 per cent, as one Money Mail reader found.

Gordon Rennie discovered that the money he and his wife were putting into Virgin Money Young Saver for their grandchildren now pays an insulting 1 per cent.

He was worried that he could not move the money because it was in trust for the youngsters. The good news is that you can move money in such accounts, but the trick is to keep the money in trust.

If you are looking for a non-Isa account for a child, then Yorkshire BS One Day’s 4.4 per cent looks a good option, while another popular account is Skipton BS Children’s Saver, albeit at a lower rate of 3.55 per cent.

You can make withdrawals for the benefit of the child at any time and switch to another account if the rate slides. Open an account with your new provider and ask your existing one to transfer the money over.

Coventry BS pays 5 per cent on its branch-based Young Saver, for children aged seven to 17. It launched the easy-access account after it found that, among seven to 11-year-olds, one in four didn’t know what a 50p coin looked like.

Yorkshire BS One Day account, available by post or in branch, pays a lower 4.4 pc, but it is open to under-21s. A host of other societies, including Swansea, Leeds, Hinckley & Rugby, Newcastle and Newbury, offer similar accounts paying 4 pc or more.

Nationwide pays 5 per cent on its FlexOne Saver, for children from 11 to 17. It comes with a Flexone current account, which is managed online, via its app, by phone or in branch.

Among the banks, HSBC pays 5 per cent on up to £3,000 in its Children’s Savings – open to seven to 17-year-olds.

A depressing report from the Social Market Foundation think tank found that just one per cent of primary school teachers think their students have adequate financial skills.

Savings accounts are therefore invaluable for setting children up on a good path – not only by building them a nest egg, but also by helping them understand how money works.