Should you consider a bank account for your child?

• How do savings accounts for children work?
• How do I find the best bank accounts for children?
• How to open a children's bank account?
• Do bank accounts for babies exist?
• What about bank accounts for teens?
• What alternatives are there to children’s bank accounts?
• Do children pay tax on savings?
• How do I get my children into good spending habits?

How do savings accounts for children work?

When explaining how a savings account works to young children, it might be helpful to compare it to the piggy banks they’re probably already familiar with. However, while these just store their money, a real bank will pay them to hold onto the cash. How much they get will depend on how long they leave it there and the interest rate, but the good news is that children’s savings accounts often earn better rates than adult ones. You could also point out that by putting their money in a bank account their savings will be protected – both from the temptation to spend it, as well as from marauding brothers or sisters! 

Some savings accounts may require you to commit to saving a regular amount of between £10 and £100 a month for a set period, during which withdrawals might not be allowed. Others, called easy access accounts, will let you add and withdraw money at will, although the interest might not be as good. Note, too, that some savings accounts for kids might drop their interest rates over a certain threshold (balances higher than £3,000, for example). It’s best to read and understand the terms and conditions carefully before signing up, so you know what you’re getting into.

Most children’s savings account can be opened with just £1 and are suitable for anyone aged up to 18. Children over seven are usually allowed to manage their savings account themselves (i.e. take money out and pay it in) but anyone younger will require a parent, guardian or grandparent to set up an account and act as a signatory.

As the designated adult, you can still manage and withdraw the cash without the child's approval up until the age of 16 (read more about bank accounts for 16-year-olds here). Most people agree, however, that if the child is old enough to legally open a savings account themselves, it is better to do it with them rather than for them. Letting them be ‘hands on’ is often a more productive lesson in financial education.

If you do want to lock away money for your child until a later date (for example, for a car or higher education), a Junior Isa might appeal instead. They’re great for keeping savings tax-free long-term (until the child turns 18), but bear in mind that in most cases your child won't pay tax on savings anyway, so this specific benefit only comes into play in a small minority of cases where the child and adult’s savings are particularly large.

How do I find the best bank accounts for children?

If it’s a children’s savings account you’re after, you’ll need to first decide whether you want a regular savings account or an easy access one. We touched upon the main differences earlier: the first encourages you to save money in the account every month, so you might not be able to take cash out easily. They usually pay a higher rate of interest than easy access accounts, although if you miss some monthly payments this rate might be reduced.

By contrast, easy access accounts let you or your child withdraw or deposit money at any time, and you usually get a lower rate of interest as a result.

You could also consider a current account for children. Much like a basic bank account for adults, there’s no overdraft facility so your kid can’t get into debt, and many also pay interest on money saved in there. It’s often possible to get a debit card on these accounts so that your child can get used to paying for goods in-store, online and over the phone. Alternatively, parents might prefer a cash card for their kids instead, which can only be used for cash withdrawals, not spending.

Once you’ve settled on the type of bank account you think will work best for your child (and it’s beneficial to include them in the decision-making process), use a comparison site to assess the pros and cons of like-for-like products. You might also want to consider things like the age limits on the account, any associated fees, extra features, whether you can download an app or access online banking, whether the child’s bank account will upgrade to an adult’s current account automatically, and how the bank’s customer service is rated in reviews.

Don't let children be swayed by the freebies often dangled to lure in new customers, which are only beneficial in the short term. It’s best to pick an account for the interest it offers, which may be more advantageous in the long term, or how flexible the bank will be about letting you access your money. And don’t take your eye off the ball once you’ve found a good deal. For easy access accounts and variable rate deals, it’s worth checking the interest every month to make sure you’re still getting a decent rate. If not, consider switching to another account.

How to open a children's bank account?

You can usually set up a children’s bank account in the UK from the age of 11. While most banks will let 16-year-olds apply independently, younger children will need a parent or guardian to come with them. You’ll need to take your child’s passport, birth certificate or provisional driving licence as proof of ID, as well as your own ID and proof of your address (a recent energy bill or council tax bill will do, or a bank statement).

Some banks will let you set up an account online or through a mobile banking app. Others require you to visit a branch to complete the application process.

It’s worth noting that there’s nothing to stop you from opening more than one kids’ bank account. You could, for example, choose one with great interest deals and another for a different perk.

Do bank accounts for babies exist?

Bank accounts for babies do exist, and they’re great if you want to start their savings journey as early as possible. Obviously, at this tender age, parents or grandparents will have to open a savings account with a bank or building society on the baby’s behalf but, depending on the account, your child may be able to start managing it themselves when they reach the age of seven.

Another savings option for babies might be opening a Junior ISA. As previously mentioned, this is a tax-free savings account that allows you to pay a certain amount each tax year (as a point of reference, for the 2021/22 tax year you can pay up to £9,000).

You’ll be able to choose between a cash Junior ISA or a stocks and shares Junior ISA. While the latter could bring in bigger returns – especially while interest rates are so low –  remember that investments fluctuate, which means they can go down in value as well as up.

It’s also worth bearing in mind that while a grandparent can open a savings account for their grandchild, in the baby’s name (as long as they can provide documentation such as the child’s birth certificate), they would need to have parental responsibility to open a Junior ISA. However, grandparents and other family members (or even friends) can contribute to a child’s Junior ISA, up to the maximum £9,000 annual allowance, once it has been opened by the parent or guardian. Ask them to share the details for making contributions.

What about bank accounts for teens?

We’ve a whole other online guide dedicated to bank accounts for teenagers, including everything you need to know about setting one up and working out which is best suited to your needs.

Older teens, meanwhile, might benefit from reading our blog post on choosing a student bank account. When opening a student bank account, teens will most likely have an overdraft and a credit card for the first time. It is very easy to take these features for granted and get into debt, so we try to point out some pitfalls, as well as explaining when to apply for one or how to switch from a children’s account to a student bank account.

What alternatives are there to children’s bank accounts?

A common alternative to children’s bank accounts are prepaid cards or online basic current accounts. However, there are some important differences between the two products that you should be aware of. Firstly, prepaid cards fall under e-money accounts, which are different to the traditional high street banks you may be accustomed to. For one thing, your money will not be protected by the Financial Services Compensation Scheme we mentioned earlier (up to £85,000). That’s not to say prepaid cards necessarily put your savings at risk as, according to e-money rules, any funds that you have on them should be ring-fenced or safeguarded. That means if your prepaid card issuer goes bankrupt, the money you have on your prepaid card account should be protected and returned to you in full. You can read more on this in our dedicated blog exploring how safe your money is on a prepaid card.

Secondly, you should also understand that prepaid cards tend to come with fees attached, from a monthly admin cost to, sometimes, fees for withdrawing cash and topping up the card.

Prepaid cards need to be loaded with cash first, and are usually linked to a smartphone app. You can use them to make payments in shops, online and to withdraw cash. Like children’s bank accounts, many providers offer text alerts or app notifications to keep track of spending, but you won’t be able to set up direct debits.

The great advantage of a prepaid card, however, is that parents generally have more control over it than a child bank account. With the GoHenry prepaid card and app, for example, parents can block and unblock cards and get instant notifications every time their child spends money. They can also set up spending controls, deciding where and how much kids can spend, and use the parent app to easily add or change the settings.

There are lots more prepaid cards aimed at children, including nimbl and Rooster. You can find details of both on our prepaid card comparison page. They claim to help kids graduate through financial milestones, from organising pocket money to getting a payment card. Rooster, for example, uses a star chart for younger years to teach reward systems, and then introduces the payment card when they're older, with a focus on responsible spending

Nimbl is similar: you can set up pocket money, unique parental controls and help your children learn how to save and spend responsibly. There’s a parent account and linked accounts for each child in the family, all managed online or through nimbl’s mobile app. You can also create login details for kids so they can access the child version of the app.

Online bank Starling also offers a product that is is similar to a child bank account. Called Starling Kite, it’s a space in the adult’s bank account with a debit card attached. The adult can top up the debit card from their Starling app and any money added will be protected through the FSCS. Kite costs £2 per month per debit card issued but there are no fees for withdrawing cash or topping up the card, and Starling claims the product includes more features than a child bank account usually would.

Do children pay tax on savings?

Contrary to what you might think, children’s bank accounts are not tax free (Junior ISAs, however, are).

Like adults, children have what is known as a Personal Allowance for Income Tax. This is £12,570 for the tax year 2021/22. They’re also eligible for the £5,000 starting rate for savings and the £1,000 personal savings allowance. This means kids will only pay tax if they earn more than £18,570 a year. 

If a parent (including civil partner and step parent) gifts money to their child and the interest from it is more than £100 a year, then that interest counts towards the parent’s personal savings allowance, and may be taxable.

However, this doesn’t apply to anyone else – grandparents and friends can give as much as they like. But there might be tax implications for themselves that they may want to consider.

How do I get my children into good spending habits?

Teaching your children healthy money habits can start from a young age. Indeed, research shows that we’ve formed many of our basic money habits by the age of seven!

By opening a bank account and giving kids some control over it, you’re already instilling good habits. Plus, many providers (including prepaid card suppliers) will have additional app features that offer fun, practical ways to introduce kids to some of the fundamental financials concepts we will use for the rest of our lives, like virtual pocket money trackers and savings pots. Others, like GoHenry, offer ‘Money Missions’, where children can learn about saving, investing and more with videos and interactive quizzes, gaining points and badges along the way.

Other lessons can be learned from real-life, however, including the age-old adage that ‘money doesn’t grow on trees’. Chores in exchange for their pocket money can be a great way of showing how cash has to be earned before it can be spent (or, better still, saved for something they really want or need).

If you’re having trouble motivating your kid to save, consider offering savings incentives. If your teen, for example, has his eyes on a new smartphone, offer to match a percentage of what they have saved. Alternatively, give them a reward when they reach a savings milestone, such as a night at the movies or a £50 bonus for making the halfway mark.

Finally, bring them on board when it comes to family budgeting. Create a monthly or weekly budget together, for example for the supermarket, and then give them control of the shopping list when you get there. Encourage them to compare prices for products that offer the best value, and use coupons and discount offers to save more money still. We’ve got more simple ideas to make budgeting fun on our website, as well as five of our favourite budgeting apps. While mainly aimed at adults, keep in mind that children have a tendency to copy what their parents do. Modelling good financial behaviour is perhaps the best way of all to reinforce positive financial habits on a daily basis.