Childrens' Savings

A savings account specially designed for children can serve two useful purposes:

• A tax free way of investing for your child's future
• A way to introduce the concept of savings to your child

Tax Free

You can arrange for interest on a child's savings account to be paid tax-free, so long as the earnings do not exceed the personal tax allowance for a child. For 2005-2006 the childrens' personal allowance stands at 4,895.

It would take a fair amount of savings to generate interest of that amount, so to all intents and purposes, childrens' savings accounts are tax free.

Children's Savings or a CTF?

Unlike a Child Trust Fund account (CTF), children's savings accounts allow the funds to be withdrawn at any time (subject to any interest penalties the bank may impose). With a CTF, all deposits and interest are locked in until the child reaches 18 years of age.

This ease of access means that your child can get involved in savings by putting aside some of their pocket money or money gifts for a special purpose, such as holiday spending money.

So, as well as being a potentially good investment, savings accounts can also help start to educate your child about money and financial responsibility - which can only be a good thing for their future.

More Info

See a list of savings accounts for children, or visit DirectGov for the latest information on tax-free childrens' savings.