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Child savings accounts

Child savings account can be useful to help teach your child the basics of money management, or you can use them to save for your child's future.

There are several types of child savings accounts to choose from. As with ordinary savings accounts the type of account you need will depend on your goals, how long you want to put the money away for, and how much access you want to retain.

Instant access accounts

If you want to have the opportunity to access the savings at any time, you’ll need an instant access account, or you could face penalty charges for withdrawing your money early.

An instant access account allows you to withdraw money whenever you like, with no penalties. However, instant access accounts will typically offer a lower rate of interest than fixed term or notice accounts.

Notice accounts

In general, savings providers reward commitment with higher interest rates.

Notice savings account require a certain amount of notice before you can withdraw any money, or you could face penalty charges. With most of these accounts you’ll need to give 30, 60 or 90 days notice and in return you’ll often get a higher rate of interest than you would with a instant access savings account.

If you withdraw money without giving the required notice, you could lose any interest or have to pay other penalties.

Fixed rate savings

Fixed term child savings accounts require a fixed term commitment, usually between one and five years. A fixed term savings account can will pay out pre-agreed rate of interest over the term.

The longer you are prepared to lock the money away, the higher the interest rate you're likely to get. You may not be able to access your money at all until the end of the term, and even if you can there may be penalty charges involved.

This type of account could be a good way to set aside and grow a lump sum for your child to access once the term has ended, without exposing the money to investment risk.

Tax efficient saving with a Junior ISA

If you’re saving for the long term a Junior ISA may suit your needs. Junior ISAs are a tax efficient way to save or invest on behalf of your child. Savings and investments made through a Junior ISA are protected from UK Income Tax and Capital Gains Tax – up to a set annual limit.

There are two types of Junior ISA, Junior Stocks and Shares ISAs and Junior Cash ISAs. For the 2016/17 tax year, the Junior ISA allowance is £4,080, which can be split between cash savings and investments as you like.

A Junior ISA is designed for parents or guardians who want to save money for a child aged under 18; the child will take ownership of the money when they reach age 16, but won't be able to withdraw it until their 18th birthday.

Junior Stocks and Shares ISA may offer higher potential returns, but deposits will be exposed to investment risk. Read our guide to investing for beginners for more on investment risks and strategy.

Last updated: 06 April 2016

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