Why not give your kids a boost this year by encouraging them to save? Check out Moneywise's pick of the best ash and stocks & shares accounts
Children love nothing more than a trip to town to spend their birthday or Christmas money and relish the opportunity to blow their pocket money on sweets or magazines at the local newsagent.
Just like many adults, they feel a sense of anticipation on being able to spend their own money and enjoy the heady rush when they hand it over in exchange for anything from a pack of Pokémon cards to the latest Xbox game.
However, encourage your children to squirrel away some of that cash and you will be teaching them important lessons in budgeting and saving, and that the buzz of delayed gratification is often more long-lasting than the short-lived hit of impulse spending.
Similarly, by helping them build their own nest egg and prepare for the major expenses that adult life often brings, you will alleviate pressures on your own finances at that time too.
To get your child saving, you will need the right savings account. The Moneywise Children’s Savings Awards will help you pick out the right deals whether they want to stockpile cash for the biggest Lego sets and never-ending wardrobe updates or you want to help them with buying that first car or paying for university.
Best easy-access account
Winner: Penrith Building Society - Junior Saver Shares
Current Rate: 2.5% gross/AER. Rate includes a 1.25% bonus, paid on the child’s birthday
Age Range: Under 18
Interest paid: Annually on 31 December
Minimum Deposit: £1
Access: Easy Access Open and manage in branch or by post
Highly Commended: Santander 123 Mini Account
An instant-access savings account is a brilliant way to get kids hooked on saving. You can encourage them to squirrel away any money that comes their way, safe in the knowledge that they can get their hands on it when they need it. It is also an opportunity to teach them about interest – the more money they pay in, the more they will earn.
Accounts in this category need to pay a competitive rate of interest and offer young savers hassle-free access to their cash. They should have a low opening balance and be open to children across the UK.
Our winner takes the accolade for the fourth impressive year. Penrith Building Society’s Junior Saver Shares pays a rate of 2.5%, including a 1.25% bonus on the child’s birthday.
Tom Adams, head of research at Savings Champion, says it is a good, traditional savings account that has consistently paid a competitive rate of interest.
“A particularly nice feature is the ‘birthday bonus’, which not only takes the rate up to a level that will be looked on in envy by adults but could be a great incentive to keep saving,” he says. “Not only that, but associating a boost to their interest with other birthday gifts is bound to engender positive feelings that will carry on right through to adulthood.”
Coming a very close second is Santander’s 123 Mini Account. It pays 1% on balances over £100, 2% over £200 and 3% on balances between £300 and £2,000.
Adams says: “Although this account is effectively a current account, it does offer one of the highest interest rates available to a child. The account only misses out on the top spot because that headline rate is only available on balances between £300 and £2,000 – so will not suit everyone.
"The fact that it is a current account does mean that there are some good features included and you can access the money through a variety of channels – all great practice for later on.”
As Santander has branches across the UK (unlike Penrith) and can be managed online, it may also be easier for children to engage with.
Best Youth Account – from age 11 upwards
Winner: HSBC - MySavings
Current Rate: 2.96% gross up to £3,000, 0.75% thereafter
Age Range: Seven to 17
Minimum Deposit: £10
Maximum balance that earns the headline interest rate: £3,000
Access: Easy Access, open in branch, manage in branch or by phone also mobile app and online (if you have a MyAccount – see below)
Other Features: Comes with a cashbook. HSBC will also open a current account (MyAccount) which comes with a Visa debit card for those aged 11-plus
Highly commended: 123 Santander Mini Current Account
In addition to easy access and competitive interest rates, accounts in this category also need the added zing that will make them popular with older children who will be making more withdrawals and quite possibly be starting to earn their own cash.
Once again, our winner and runner-up are the same as last year. HSBC’s MySavings is top of the pack.
“One of only two accounts for this age range that pays the top available rate, HSBC takes the prize by virtue of having a larger maximum interest-bearing balance,” explains Adams.
“What is nice about this account is that it forms part of a package, with a current account – along with the all-important debit card – available for those over 11.
“It is a convenient solution and an answer to the age-old issue of keeping your savings separate from your current account.”
123 Santander Mini Current Account comes in a close second.
Adams says: “Just missing out on the top spot, nevertheless, this is still a good option to consider as it offers a top savings rate and current account features all rolled into one.
“A great first current account for young people, with all the features you would expect to help them manage their finances effectively and multiple-access channels to suit different situations.”
He adds: “To top it all, it offers a great interest rate with different tiers that can help young people to get into the savings habit and see for themselves the virtue of saving more for a higher return.
“It's an account that gives the opportunity to practise managing finances, which a young person can then use throughout their lifetime.”
Junior Cash ISA
Every child should have an instant-access account for everyday use, but for longer-term saving, it makes sense to have a Junior ISA, or JISA, too. Each year, children, parents and other family members can pay in £4,368 a year and no tax will be payable on that money. It won’t be accessible until the child turns 18, however.
This makes these accounts an ideal way of saving for all those expenses that come with early adulthood, whether it be a first car, university tuition or a house deposit. As an added incentive interest rates are usually higher than those paid on instant-access accounts – as the rates paid by our winner and runner-up show.
At the top of the pile – for the seventh consecutive year – is the Coventry Building Society Junior ISA, which pays a whopping 3.6%.
Adams says it was an easy choice: “It is hard to look beyond this Junior Cash ISA – it offers the best rate on the market by a significant margin and has been consistently high-paying throughout its lifetime.
“Already paying a competitive rate, the account saw the rate increased following the base rate rises in both November 2017 and August 2018, with no rate cuts since it was launched. Well ahead of the pack, simply put, this is the best Junior Cash ISA around.”
Once again, our highly commended is also the same as last year. The Darlington Junior Cash ISA pays 3.25%.
“Around since day one of the Junior ISA and with no rate cuts during that period, this account is one of the next best options available,” Adams says.
“It just edges its rivals by offering a postal application channel for convenience, rather than just branch access. The bottom line is that it is the best of the rest.”
Junior stocks and shares ISA
A Cash ISA provides a safe home for your child’s nest egg, but if you have ambitious savings targets and a lengthy savings horizon you should get better returns with an ISA invested in stocks and shares.
Take the example of £50 invested every month into a Junior ISA paying 3%. After 10 years it will be worth £6,989, according to Hargreaves Lansdown. That is certainly not to be sniffed at, but had that money been invested into an equity-based fund with an annual return of 6% a year, it would be worth an impressive £8,163.
The judges in this category were looking for platforms that offered a wide fund selection, competitive fees and low monthly contributions to make it accessible to more families.
Our winner for the second consecutive year is Hargreaves Lansdown. Judge Patrick Connolly, chartered financial planner at IFA Chase De Vere, says it’s not the cheapest option but is transparent and easy to use.
“This is probably the most expensive product. However, as most Junior ISA investments are likely to be relatively small, the pounds and pence differential in charges between this and other products should also be small,” he says.
Martin Bamford fellow judge and chartered financial planner at Informed Choice, takes a similar view.
“While Hargreaves Lansdown has the highest annual fee of shortlisted providers, it offers consistently good service to customers. There is strong disclosure around their fund ideas and in-house funds on offer.”
Our runner-up this year is AJ Bell You Invest.
Justin Modray, judge and founder of Candid Financial Advice and Comparefundplatforms.co.uk, says: “A close second, only held off the top spot by monthly fund dealing charges. Otherwise, it’s a very competitive service with good research and suggested portfolios, along with the option to hold shares.”
Hargreaves Lansdown and AJ Bell were the only shortlisted platforms, to offer to pay in just £25 a month, compared to the usual £50.
Five tips to get your kids saving
1 Children feel as if they are losing control of their money when they pay it into the bank. Encouraging them use it to save for things they want and letting them make the odd withdrawal here and there will remind them it is still their money and accessible when they need it.
2 Telling your child they need to save £100 in a year to earn £3 in interest won’t be a massive incentive to squirrel their cash away. Instead, motivate them to save more of their money by offering your own top-ups, say £1 or £2 for every £10 they save. That way, they will see their balance grow much faster and understand the benefits
of paying money into
3 Make a visit to the bank a regular part of trips to town. Discuss how much of their money they should pay in and go to the bank before they visit the shops – where spending may get the better of them.
4 Fancy holidays, new cars – even our retirements – motivate us to save, and children are no different. Encourage them to set easily achievable savings goals and they will soon learn the benefits.
5 All parents question their children’s spending decisions from time to time. Letting them make a few dud choices along the way can be useful in teaching them the perils of frittering their money away, especially if it means they miss out on something they really want as a result. Don’t automatically bail them out and use it as an opportunity to discuss the need to save.