Child Savings and Child Trust Funds

When opening a child's savings account, you need to consider things like interest, accessibility and taxes.

You need to shop around for the best deal for your child. Think about what you as an adult would look for, then look for the same requirements for your child or use that information to advise them on how to find the best deal.

Things to consider:

Accessibility – how quickly can you withdraw money from the account? Sometimes there are penalties for short-notice withdrawals.

Interest – some children’s accounts pay a higher rate of interest than others (the idea is to encourage children to save).

Income tax – children have a personal income tax allowance of £4,745 (for the 2004/2005 tax year). As long as the total amount of all of their taxable income – including interest – falls within the allowance, no tax will be payable. Keep in mind, though, that special rules apply to interest income produced by money given to children by parents.

Special tax rules for gifts from parents
Taxes and gifting to children
Saving schemes for children
Opening an account for your child

You can open a savings account for your child from birth, but initially only you – on behalf of your child – will be able to deposit and withdraw money. Depending on the bank or building society, children can start making their own deposits and withdrawals from between the ages of eight and 12.

Some savings accounts have a maximum age limit – up to 21 years old in some cases. Others have a minimum age, so you’ll find some accounts are only open to 11 year olds and above. Many banks and building societies offer cashpoint cards to children aged 13 and over, and those over 16 can get a cheque book. Under 18s may not get an overdraft.
Should your bank or building society take off tax?

When you open a savings account for your child, you’ll have to decide whether you want the bank or building society to deduct tax from the interest they earn. If you don’t tell the bank or building society anything, it will automatically deduct tax. You can ask the bank not to take off interest if your child's total taxable income is less than their ‘personal allowance’ (the amount of money a person can make before paying any tax).

However, if your child has gifted money from either parent that earns more than £100 a year in interest (or £200 from both parents), you cannot ask the bank to pay interest without tax. In this case the tax will be taken off, and your child will not be able to claim it back at the end of the tax year.

To help you decide whether your child will be eligible for tax-free interest, you can read the Inland Revenue's Helpsheet for Form R85(2004 New). If your child is eligible to receive tax-free interest, complete Form R85 (2004 New), ’Getting your interest without tax taken off’, and give it to your child’s bank or building society. Any future interest will then be paid without tax taken off. You can download the helpsheet and form at the links above or get them from a local bank or building society.