Dear Father Hood: any tips on opening children’s bank accounts?
Money, money, money, must be funny, in a baby’s world. I’m not kidding. My little one finds plastic bottles, cupboard handles and hitting me in the face with a stapler hilarious, so imagine how hysterical he’d be at the sight of someone feeding a silvery bit of the wall some plastic, pressing its tummy a few times and then pulling several bits of paper out of its poop hole? The mind boggles. And it also does somersaults of surprise when its scans some of the astounding interest rates available on kids’ accounts. Savings accounts offering 4%, ISAs paying 3% – it’s like Brexit and the financial meltdown never happened.
Due to these fantastic rates, it’s tempting to channel your inner Liam Gallagher and swagger into your bank smoking, chugging lager, flicking the V sign and demanding that all your cash be moved out of your 0.1% ‘E-saver bonus +++ account’ and into a bunch of products designed for “our kid”.
Before you do this there are probably a few things you should know. And when I say probably, I mean definitely.
- First up, the moment you put money into a tax-free junior ISA is the moment you wave bye-bye to that cash, as your little one is now the only one who can handle it (and only when he or she turns 18).
- Second up, many of the accounts with the best interest rates only allow you to invest a certain amount of cash per year (e.g. £100 a month).
- Third up, if your kid earns more than £100 a year in interest on money put into a savings account by a parent or step parent, then the parent/step parent gets taxed on this interest at his or her standard rate.
- Fourth up, most high interest kids’ accounts drastically drop their rates if you make more than one or two withdrawals in a calendar year.
- Fifth up, banks often offer preferential kiddy account rates to existing current account holders.
Got all that? Fantastic, then all that remains for me to do is a) plead for your money saving hacks, as, due to all the cash we spend on food and bibs and toys and clothes and wipes and baby classes and soft play and Calpol and milk and nappies and wine, my wife and I are bamboozled as to how any parents could have any spare wonga to save; b) tell you that you’ll need your kid’s birth certificate or passport to open the account; and c) recommend a few options that I like the look of*.
If you want to go tax-free and couldn’t give a monkeys about not seeing the cash until your kid’s 18 try…
…Nationwide’s Smart Junior ISA – at present this is offering a 3% interest rate and you can manage it online or in branch.
…Santander’s Junior ISA – this currently pays 2.75% if you are a 1/2/3 account or Santander select customer.
Note: each of the above can be opened with as little as one hundred British pennies and you can deposit up to £4,080 in this tax year.
If you want to persuade the grandparents to open an account that’ll get your kid a great interest rate try…
…Halifax’s Kids’ Regular Saver – this account currently pays a ridiculously competitive 4%, but that rate does come with a few caveats. Namely: you can’t make any withdrawals during the year, you must set up a standing order of between £10 and £100 each month, all the money gets transferred to a slightly less lucrative account after 12 months and you can only access the account in branch. Still, 4%. Wow.
…Santander’s 1/2/3 Mini Account (in trust) – crucially, you or the grandparents need to be Santander current account holders in order to score this deal. If you are, and you kid is under 11, then right now this account pays 3% on balances from £300 to £2,000. And even better than this? You can manage it online and withdrawals are allowed at any time.
If you want to take advantage of a decent interest rate and couldn’t give a monkeys about paying a bit of tax on the interest try…
…Nationwide’s Smart Limited Access account. If you make one or zero withdrawals in a year, this account pays 2.25% on balances up to £50,000. How much interest will that be if your top it out? Drum roll, please… it’ll be a whopping £1,125. Which, even allowing for the tax, should cover your pride and joy’s nursery fees. For a month.
And that’s it. Those are all my tips on opening children’s bank accounts. Next week: why peer-to-peer lending is the gift horse parents have been looking for. Not really. I’ll no doubt be back on to more pressing parental concerns like how to get poop out from behind your nails, or what to do if you wet yourself while waiting in the queue for the baby change.
*all interest rates and information correct on 03.03.17.