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Best Childrens Savings Accounts

Children's Savings Accounts operate like ordinary savings accounts, but often, until the child reaches age 7, the account must be in the parent's name. Children have a tax free allowance the same way adults do (£5,225 for 2007/08), and interest rates on children's accounts are often up to 10% AER, so they are a good way of saving for the future. The best children's savings accounts include:

Child Trust Fund: Use your child's £250 voucher from the government to set up a Child Trust Fund and save up to a maximum of £1,200 a year, tax free.
Children's Bonus Bonds from National Savings and Investments (NS&I): Tax-free interest with an additional bonus if the money remains untouched for five years.
Index-linked Savings Certificates (NS&I): Invest from £100 to £15,000 for three or five years. The value of the investment is guaranteed to keep up with inflation and the interest rate is guaranteed and you don't pay any tax at all.
Premium Bonds (NS&I): Children can own between £100 and £30,000 worth of Premium Bonds which are entered in a prize draw every month and prizes are tax-free.
Individual Savings Accounts (ISAs): When a child reaches 16 years old they can open a tax-free cash ISA.

Any contributions by parents that generate more than £100 of interest per year will be treated as parental income, and that parent will have to pay tax, but interest earned contributions by friends or other relatives are not. To make sure the child receives their tax free allowance, parents should make sure they ask for Form R85 to make sure the interest paid on the account is automatically tax free.

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