By Marc Simpson
With inflation higher than ever and interest rates at an all time low, many child savings accounts give less than appetising interest rates. However, for those parents willing to put in a little effort it is still possible to find accounts with good interest rates for their children's.
Britain's fourth largest building society, Skipton, just launched the Leap Account Issue 2, which offers an interest rate of 2.75 per cent (including a 12 month bonus of 0.5 per cent), launching it into the league tables and making it a great place for parents to encourage their kids to store any left over Christmas money.
Bonus
However, even at that rate the account is not capable of beating inflation of 4.8 per cent, leading many parents to take the savvy step of opening up a Junior ISA, offered by providers such as Family Investments, for their child as the tax relief on the account effectively increases the rate of return.
The account can be open at any of Skipton’s large network of branches, however like many child savings accounts it comes with a bonus, which once gone can leave the account with a less than stellar rate. Teaching children now about tactics used by banks and building societies, such as bonuses, that are designed to save them money at the expense of the consumer can help ensure they are a savvy consumer for the rest of their life.
Accounts
That is why it is a good idea to get kids involved with the opening of any account that is for them and teach them about transferring accounts once bonuses expire. Opening a Junior ISA for your child can also help you to teach a basic lesson about tax and interest.
There are other accounts that beat Skipton’s offering, such as the Northern Rock Little Rock Instant Access Issue 2, with a rate of 3 per cent. However, even at that rate, which is top of the league table, it still does not beat inflation.
And no matter the account opened for a child, it is important to fill out an R85 (as long as the child is eligible to fill one out) for the account to ensure the interest is not automatically taxed. Another alternative to the Junior ISA, is the option to open a children’s stakeholder pension, offered by providers like Virgin Money.
MyEggNest's Top Tip: Shepherds Young Saver Plan
Child Tax Exempt Savings Plans (TESPs) are currently the most tax efficient way to save for your child - and Shepherds Young Saver Plan gives you the chance to lock away more per month than any other TESP.
The plan allows parents to save from as little as £7.50 to £100 each month - 4 times more than any other provider - and offers sickness benefits, along with the ability to withdraw up to 25% of the fund after 10 years.
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