You might be focusing on the best interest rates but your child will prefer an account with free goodies. Spencer Lord strikes a balance.
Saving for your children can weigh heavily on the mind. The Child Trust Fund should persuade you to plan long-term. At some point though, you'll have to hand the investments over to your child. And unless they have learned to appreciate the value of savings, all your hard work may be undone. Getting them their own account can help and it can be a rewarding experience too.
Children have a personal income tax allowance (£4,745 in 2004/2005) and any interest below this is tax-free unless initial investments were made by the parents. If they do supply the deposit, children can still earn £100 before it's taxable.
And this interest can be substantial. It's worth companies offering high rates because it helps them win customers while they are young, and as Jo Roberts, director of NeedanAdviser.com, says: "If they lock in a child's savings, then they are more likely to retain that child as a teenager and an adult."
Internet-based accounts offer typically competitive interest rates, but having said that branch accounts still offer some of the most competitive rates showing that providers are willing to be generous in order to win over the savers of the future.
Freebies
But not all bank accounts attract children using great rates. Some use freebies such as kit bags, piggy banks and wallets to children who start a savings account. Other freebies include such items as comics, height charts, magazine vouchers, wallets and purses, and other must-have consumables, presumably designed to accentuate the nag factor of your offspring. There's nothing wrong with free gifts, as long as they aren't the only reason for having the account, but some are tied to less generous rates.
Interest rates
So if you can find one with high interest and a freebie or two you're on to a winner. Children will also be interested in a bank that's local, and can become part of their daily life. And kids are increasingly fascinated by technology, so look for an account with technological features, whether it's a flash website, or WAP access through mobile phones.
Restrictions
Also some accounts have restrictions on withdrawals either on a monthly basis or up to a maximum over the lifetime of the account. All accounts, as you would expect accept a minimum deposit of only £1. Maximums tend to be around £10,000 mark with a smaller number of accounts allowing you to invest as much as £25,000.
The definition of a child varies among providers. Some accounts accept deposits from young people up to 16 years of age while others go up to 18, 19 and even 24, an extremely old child by anyone's reckoning.
