Children's savings accounts operate in much the same way as standard savings accounts do, except that they often have to be under a parent’s name until the child is seven. Like adults, children also have a tax free allowance, which means that all income up to a certain limit - £5,435 for the 2008/09 tax year - is not taxable. Children's savings accounts are therefore a good way of saving for your child’s future; interest rates are usually higher than on standard accounts too - often up to 10% AER. There is a wide range of choice when it comes to the child savings accounts that are available, including:
Any contribution from a parent that generates more than £100 of interest per year is treated as parental income, so that parent will have to pay tax, but interest earned from other contributions are not, such as from other family members. To ensure the interest paid on the account is automatically tax free, parents should ask for Form R85.