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Child Tax-Exempt Savings Plans


Did you know that Children's Tax-Exempt Savings Plans (TESPs) also provide a long-term, tax-free way to save for your children's future?


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Children's Savings Accounts


Instant Access Accounts
Fixed Rate Accounts
Other ways to save for your children
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Most banks and building societies offer children savings accounts and finding the best deals is an easy process once you understand the basics.  

First, before opening a children savings account, fill out the Inland Revenue R85.  This will allow your child savings to be tax-free. If you don’t complete this form, your children could be losing thousands of pounds to the Inland Revenue. See Children and Taxation.

Second, banks and building societies often offer much higher rates of interest for their children's accounts than their traditional savings accounts. This is because trends indicate that once they have your children hooked onto an account, it is highly likely it will remain open for life.

Therefore, banks and building societies will entice you with short-term higher rates, bonus rates, free debit cards for children, money-boxes, height charts, colourful stickers or whatever it takes to get you to join their savings account.

However, you should be mainly concerned with interest rates when looking for the best deals for your children savings account.  Forget the multitude of freebies banks are offering and look at the long term. A complementary piggy bank worth £3 is insignificant compared to the hundreds (and hopefully) thousands of pounds you will save for your children's future. However, if you do want to take full advantage of all these freebies please visit our Freebie page

Lastly, don't be loyal to banks because they are certainly not loyal to you. Constantly look out for the best deals on the market. A best buy deal today does not mean a best buy deal tomorrow. 

Choosing the right bank account will depend on how much flexibility you want. Bank accounts come in two categories: Instant Access and Fixed Rate Bonds.

Instant Access

Benefits
If you want easy access to your savings, instant access may be just what you need.   Most instant access accounts only require an initial deposit of £1.  Many accounts have no restrictions on the number of withdrawals you can make and also offer a savings card to withdrawal money from ATM machines. Non-taxpayers can fill out an Inland Revenue R85 and be paid interest gross with no tax deducted. 

Risks
Contrary to popular belief, putting your children's money in a saving account is not completely risk free.  However, in the unlikely scenario that your bank or building society does go broke, there is a government compensation scheme in place to limit your losses.  UK banks and building societies are all registered by the Financial Services Authority (FSA) and adhere to the Financial Services Compensation Scheme.  This GUARANTEES you’d get back the first £2,000 and 90% of the next £50,000 of your savings.   Therefore, if you want to be completely risk free, never save more than £50,000 with any one institution. 

Fixed Rate

Benefits
If you are looking to save for the long-term, a fixed rate account may be more appropriate. The benefit of a fixed rate return is the rate of interest your money will earn from the beginning which cannot be changed; you know exactly what the return on your savings will be. In addition, you may have the option of having the interest paid monthly or annually.

You could benefit from compound interest if the bond runs for several years.  Some bank and building society interest rates include bonuses that can be withdrawn after an agreed period; this could run into hundreds of pounds.

Risks
As explained above, there is a slight risk that your bank will go broke but providing you don't put more than £50,000 in one institution, you're covered by the FSA rules.

A more likely risk is the gamble with interest rates. If interest rates rise during the term of your bond you will lose out on the increase. Interest rates are set by the Bank of England’s Monetary Policy Committee and their primary responsibility is to meet the government's inflation target. So, if you think inflation will rise in the coming years, it is in your interest not to invest in a 5% fixed savings plan when the base interest rate is currently 8% as nearly all your savings could be eroded by inflation.

Finally, income tax! Yes the dreaded taxman is on hand to take your hard earned money at every point; even your child’s savings are not safe. See Children and Taxation to avoid paying income tax on your children’s savings.

Best Buys Fixed Rates


Savings

Minimum
Investment

Gross
%

Fixed
Length

Product
Reviewed

Product Details

Chorley & District BS
Foxley Fund

£1

2.90%

 Age 18

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The minimum initial investment and account balance is £1 (the minimum investment must be enclosed for the account to be opened). The annual maximum investment per qualifying year (1st January to 31st December) excluding interest is £1,200. Click here for more information.

Clydesdale Bank
Child Savings Bond

£50

4.25%

  5 Year Bond

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An ideal gift for any child aged 0 - 16 years. Interest is payable annually and at maturity. The rate is fixed for the term quoted. Guaranteed to grow if held for the full five year term. At the end of the five year term money can be re-invested or withdrawn. Click here for more information.

Halifax children's
 Regular Saver

£10

 6.00%        

  1 Year Bond

4 reviews

Regular savings of £10-£100 per month aimed at parents saving for children (age 16 and under). After 12 months the money is moved into another Halifax account. Click here for more information.

 

Harpenden
18 Club

£1

2.45%

Age 18

1 Review

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Variable rate savings account from tots to teens - keep savings and gifts growing. No withdrawals until aged 18. Interest is paid half-yearly in June and December *. Click here for more information.

 Leeds BS
Dinosaver

 £10  1.50%  None

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DinoSaver is an instant access savings account designed to give young people a head start in managing their money. With free gifts to help you keep track of your savings and a high rate of interest, DinoSaver is a great way to develop your first savings account. Click here for more information.

 

Principality BS
Dylan's Children's Regular Saver

£1

0.90%

1 Year Bond

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Dylan's Regular Saver offers a great and easy way for a child to save money.Competitive fixed rate of interest on their regular savings.Invest up to £1,800 over a 12 month period. Click here for more information. 

*For young savers under 7, the Bond must be opened by one or more adults known as trustees.

Best Buys Instant Access

Savings

Minimum
Investment

Gross %
(inc bonus*)

Fixed Length

Product
Reviewed

Product Details

CHELSEA BS
Ready Steady Save

£1

2.00%

Instant

1 Review

Designed for children aged 15 or under who want to start saving. Save from £1 to 20,000. Withdraw your money as often as you like with instant, penalty free withdrawals.  Easy to open and simple to operate at your local branch or by post. Click here for more information.


Earl Shilton BS
Foundation
£250 2.25% Instant

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A 0.50% gross bonus is payable for the first two subscription years with the Earl Shilton Building Society subject to a minimum additional subscription of £240 each year, which does not include Government subscriptions or vouchers. Save up to £1,200 each year until the child reaches 18. Click here for more information.

Halifax Save4It £1

1.05%   

Instant

1 Review

Winner of a Tommy’s Parent Friendly Award for Best Children’s Savings Account in 2006. A pocket-money savings account specially designed for children under 16. Open an account with just £1 (maximum balance £5,000) and name it whatever you like, e.g. 'Sarah's account'. Click here for more information.

Loughborough BS Young Savers + £1 2.20% Instant

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Minimum Opening Balance: £1.00 Maximum: £20,000. Available to savers up to 16 years. Only one saver can be linked to an account. A passbook will be issued when the account is opened. Click here for more information.

Nationwide BS
Smart
£1 0.75% Instant

1 Review

Award winning, instant access savings account for under 18s. Pays a great rate of interest to help you make the most of your savings. Operate your account with a passbook or, if you're over 11, you can choose to have a cash card and manage your savings online. Click here for more information.

Natwest Young Saver £1

 0.80%    

 Instant 

1 Review

Quarterly interest is paid directly into the account. Most children can get the interest paid tax-free on a Young Saver account. Paint your own piggy bank – get a ceramic footballer or ballerina pig, complete with paints, if you set up a Standing Order of at least £10 per month. Click here for more information.

Norwich & Peterborough BS
Family Young Saver
£1 2.00% Instant

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Young people aged 7 or over can operate an account themselves. Parents, Grandparents or guardians can save on the child's behalf as a trustee. Interest is paid annually. You can take your money out at any time, without notice or loss of interest. A cash card is available to account holders aged 13 and over. Click here for more information.

 

Saffron BS
Ladybird
£1 1.50% Instant

1 Review

Award winning, instant access savings account for under 18s. Pays a great rate of interest to help you make the most of your savings. Operate your account with a passbook or, if you're over 11, you can choose to have a cash card and manage your savings online. Click here for more information.

Skipton BS
Leap
£10 1.80% Instant

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Simply visit any branch to open an account or send your application to the Skipton BS Principal Office. You need to be 26 or under and have at least £10 to open your account. You'll then receive your own passbook to keep an eye on what you've paid in and taken out. After that, you can pay as little as £1 in to your account each time - by cash, cheque or transfer from another Skipton Building Society account. Click here for more information.

 

Yorkshire BS
One Day

£10

1.74%

Instant

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One Day is a regular savings account designed to help you save for your child's future. Whether you're putting something aside for University, their first car, a significant event or you simply want to show your child the art and benefits of money management, the One Day account gives your children accessible savings without the headaches. Click here for more information.

 

* Bonuses are awarded where you meet certain conditions.


Notes: All rates subject to change without notice. Please check all rates and terms before investing or borrowing.

Other ways to save for your children:

Children's Tax Exempt Savings Plans

Unit Trusts for Children

Children's Stakeholder Pensions

Individual Saving Accounts (ISA) 

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Join in the Children's Savings Accounts discussion Forum  

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Alternatives to CTFs - Tax-Exempt Savings Plans
Did you know there are alternatives to the CTF that offer the same tax-free savings? Tax-Exempt Savings Plans (TESPs) can help you build up a lump sum for your child through small, regular payments. Your fund grows free from any income or capital gains tax, and can be used to save for children of all ages. Click here for more information about TESPs, and specific plans offered by friendly societies. 


 

Radcliffe & Newlands
Lump Sum Investments

Puzzled by lump sum investing? Get help from qualified investment professionals. Click here for more information.

Chick
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