It’s the gift that keeps on giving (and a cracking BOGOF to boot). Why not give your children money for a savings account to start a nest egg this Christmas? Then an even better present is to teach them how to ensure it’s at the best rate to encourage them on the path to being money-savvy. 

Sadly children’s savings aren’t immune from the dire savings rates available right now. If your kids already have savings, check the rate –many children’s accounts pay less than a dismal 1%, yet you can boost that with not too much work.

The top paying children’s accounts

Pay in £10-£100 a month and Halifax Kids’ Regular Saver pays 6% fixed AER for a year (not available in Scotland), provided you make no withdrawals. The interest rate is fixed when you open the account and is paid on maturity after 12 months, so make sure you move it then to keep the rate high.

If you’ve a lump sum and you want to lock it away in your kid’s name, then the Halifax Kids’ Fixed Saver pays 2.25%-3.2% AER fixed for 1 to five years, with a minimum deposit of £500. As it’s a fixed account, withdrawals aren’t allowed.

If you just want the best paying standard savings where your children can withdraw money whenever they want, Virgin’s Little Rock account pays 3% AER from as little as a pound. The rate’s variable so give your kids the job of rate monitoring (if they’re not old enough, you’ll need to do it) and finding the best if this one drops. Full best buys at Money Saving Expert

For all these accounts, the account holder must be under 16, and they have to be accompanied by an adult when opening the account. To ensure the interest is paid without tax, fill in an R85 form at hmrc.gov.uk/forms/r85.pdf – the bank should give you one of these.

The top paying junior ISA and child trust funds

Under-18s born before 1 September 2002 or from 3 January 2011 can save £3,600 a year each year tax free in junior ISAs. The current top payer is Coventry Building Society, giving a variable 3.25% AER. You can also choose to invest the money in various stock market funds in the hope of greater growth, but at greater risk.

Other under-18s who were born outside of these dates don’t have access to junior ISAs, but should still have the child trust funds they opened with the Government’s £250 voucher. Again like junior ISAs, you can choose to save or invest £3,600 each tax year in these. You’re only allowed to hold one CHECK, so if you’ve already got one, check the rate. If it’s poor, you’ve a right to transfer it (ask the new provider to move it for you – you can’t withdraw the cash).  

The best paying child trust fund savings account right now is with Furness Building Society, currently paying 3.05% AER. With both these types of savings, the money’s locked away until your child is 18.

Children’s saving v junior ISAs – which wins?

The big sell of junior ISAs is that they’re tax free. Yet as kids are taxed just like adults, it means unless they earn over £8,105 a year, they don’t pay tax. So – stage school prima donnas excepted – that means a junior Isa’s benefits are limited. 

Therefore for most people when choosing a version of children’s savings, focus on the highest interest rate, regardless of whether it’s a children’s savings account or a junior ISA. However, there are two exceptions:

1) If money is a gift from parents (not grandpa, aunty, etc) and earns £100 or more a year interest in children’s savings, then it is taxed at the parent’s tax rate. This could be expensive, in which case putting it in a junior ISA where it’s always tax-free is a gain.

2) At 18, junior ISAs turn into normal ISAs, so if your child will have big savings then, more than enough to fill an adult cash ISA (£5,640), then putting it in a junior ISA now means it’ll stay tax-free then.

Are you saving for their ‘university fund’?

It’s important to understand when you save in your child’s name that it’s their money, not yours. For example, if you’ve saved money for them to go to university in their junior ISA, at the age of 18 they can choose to spend it on a boozy holiday and fast car. You can’t stop them. 

So if you really want to save for their future in a way which means you’re in control, it’s best to keep it in your own name, although then you risk paying tax on it.

It’s also important for me to throw up a big red flag about paying your children’s tuition fees upfront. Often this is a monumental waste of money and can risk throwing away £10,000s a year. 

That’s because students only repay fees if they earn above £21,000, and even then they only repay 9% of that. This means all barring high earners won’t end up repaying the fees in full within the 30 years before it wipes. So they may end up not benefitting at all from you paying off the loan.

If you do want to save up for them, a mortgage deposit or lump sum for a car is often a better idea, as these are more expensive debts that will need repaying regardless. For more info on making this decision, see Money Saving Expert.  

Tesco Xmas DOUBLE exchange, incl toys

Tesco Clubcard’s ‘double points’ in-store promo is back. Before doubling in-store, check Tesco’s Rewards brochure, which gives 3x or 4x points’ value (so £5 becomes £20) at places like Ask and Goldsmiths. Until 5 Dec its Christmas Exchange lets you swap each £5 voucher for £10 to spend in-store or online in selected departments. These include toys ‘n’ bikes, frozen food, Christmas trees, decorations and Finest wine and champagne. Full info at mse.me/tesco

Need fast cash for Christmas? Flog it!
Flogging owt via eBay usually pays best. If you prefer speed and ease rather than max price, several sites let you enter details, they offer a price, and you post goods free. For mobiles, MobileValuer.com speedily finds top prices for old handsets, cameras etc. For CDs, games & DVDs, declutter via MusicMagpie.co.uk. For books try WeBuyBooks.co.uk or Amazon.co.uk Trade In.

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