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Dos and don’ts: Child savings plan

20th June 2012 Print

As devoted parents or grandparents, many people want to give their young relatives the best possible start in life. Locking away some money for the future that the child can access at a later time in life is a great plan, but what is the best way to go about it?

Setting up a child savings account is easy, so really the only tricky part will be choosing where. Provided below are some top dos and don'ts of setting up a savings account for the little person in your life so you can make sure the money you put away for his future brings the maximum benefit.


Pick the right account for your situation. You will need to think about how old the child is now and at what age you want him to have the money. If you are saving for 7 years or more, you may find locking away that money in a long-term savings account attracts a better rate of interest than going for an account that offers easier access.

Compare rates. Even with the currently unfavourable market conditions, you may still be able to find 6% deals or better if you shop around. Remember to compare the rates on fixed-term deals as well as instant access accounts.

Consider the future. If you are unable to find a rate you are happy with, make sure you will be able to move the money later down the line to an account offering a better rate of interest, should market conditions change.

Get professional advice. If you intend to stick a large amount away for a child, be sure to get some qualified advice on the best way to go about it. You can find accountants in Manchester, London or wherever you live who will be able to help you figure out how to grow that money as much as possible for the child whilst still avoiding paying a whack of tax on it.


Settle for the account that your bank offers you. Bank staff are sales people, trained to sell you their products just as much as those annoying cold callers who interrupt your evening. Take the initiative and compare prices yourself to ensure you are getting a great deal.

Lock money away if you might need it again sooner than the term. It sounds like a great way to keep money away from sticky fingers, but if you aren't sure you can do without it, don't do it. The penalties for withdrawing the cash early will almost certainly outweigh any added interest you were getting, so go for the best instant access account you can find if you are not 100% sure.

Assume children can save tax free. It is a myth that children don't pay tax. The are, in fact, on the same rate of tax as adults and allowed to save just over £8,000 per year tax free. Because the majority of children never pass this threshold, many people think they can save tax free, but actually if you go sticking large amounts of money into their accounts, they will be taxed in the same way adults are.

On a final note, never forget that it's never too late to start saving for your children's future!

This post was written on behalf of Mitchell Charlesworth. Click here for further information relating to saving plans and general financial advice.