A Guide To Children's Savings Accounts

Whether you’re a parent, guardian, grandparent or family member, saving for a child’s future is one of the most rewarding financial decisions you can make. Finding simple ways to put money aside in a child’s savings account as early as possible can provide your children with greater opportunities for their future, whether that is for educational funds, driving lessons, or helping to save towards a future home deposit. 

Preparing your child for their future can seem daunting; with a wide range of savings accounts available, it can be hard to know which plan is right for you and your child. At Sheffield Mutual, we ensure that savings plans are as simple as possible. 

Throughout this guide, we will explore every option available for your child’s savings account, how they work, and what you need to consider to choose the best option for your child and your family. 

Why Open a Child’s Savings Account? 

Similar to a regular savings account, a child’s savings account is designed to help build financial security over time. 

Though the concept of a savings account can often be overwhelming, the process can be incredibly beneficial in the long run. Even small, regular contributions to a plan can grow into a substantial amount with our long-term savings opportunities, as well as the potential for investment growth and bonuses, depending on your plan. 

Having a savings account open for your child as early as possible can provide a variety of benefits for their future, including: 

• Saving for a future house deposit. 
• Helping towards educational funds.
• Paying for driving lessons. 
• Saving for a future car. 
• Providing a safety net for future unexpected expenses. 
• Supporting a healthy money mindset. 

Many savings accounts can provide tax-free ways to introduce your child to money-saving benefits. The earlier an account is opened, the more time you and your family have to allow the money to grow. 

What Types Of Children’s Savings Accounts Are Available? 

With a Children’s Savings Account, there is no one-size-fits-all solution to choosing the right account plan for you. To find the best savings account, you must factor in your goals, how much you wish to save, and how long you plan to invest the money. For example: 

1. Junior ISAs:

A Junior ISA could be an option for those looking for long-term savings. Investing in a Junior ISA provides a tax-free way to save money, which can accumulate greater wealth over the long-term, while tax rules apply. 

With a Junior ISA, parents or legal guardians can open the account, while other friends and family members can contribute, allowing for greater value over time. The child officially owns the money and can access it only when they reach the age of 18. 

A Junior ISA is a great choice for:

• Tax-efficient savings. 
• Long-term savings. 
• Savings which cannot be accessed until the child reaches adulthood.
• Those who wish to save regularly or make occasional lump-sum contributions, ideal for birthdays or Christmas. 

We offer both an Investment Junior ISA and a Sustainable Junior ISA from as little as £10 a month to help your child achieve their future goals.

1. Children’s tax exempt savings plans: 

With a friendly society like ours, you can access a Children’s Tax Exempt Savings Plan. This is a great option for providing an additional tax-free savings allowance alongside a Junior ISA for regular monthly or annual contributions. 

Under the current legislation, contributions to a tax exempt savings plan must be limited to £25 per month or £270 annually, applied across all tax-exempt plans held. 

A friendly society savings plan such as this allows families to maximise their tax-efficient savings. They are particularly suitable for families who: 

• Want an additional tax-free allowance. 
• Wish to save for specific future goals over a 10-25 year fixed period. 
• Have family members wishing to make regular gifts. 

As with many long-term investments, it is important to note that tax rules may change over time and that bonuses are not guaranteed. 

1. Children’s regular savings plans:

A Children’s Regular Savings Plan is an option if you have already used any available tax-free allowance. 

Our regular savings plan is designed for medium-to-long term savings, with deposits from as little as £5 a month and a guaranteed minimum balance at maturity, provided all premiums are made. 

A regular savings plan is often used by those who wish to save towards: 

• Educational fees. 
• Driving lessons. 
• First cars. 
• Support for major life events, such as a house deposit or a wedding. 

1. Children’s investment bonds: 

A Children’s Investment Bond is an opportunity to invest a large lump sum, such as an inheritance. Rather than making monthly contributions, you can invest a single amount in an investment bond and leave it to grow over the medium or long-term. 

A lump sum between £1,000 and £150,000 can be added at any time and held for a minimum of 5 years. At Sheffield Mutual, our Children’s Investment Bonds are also offered with a guaranteed minimum return after the qualifying period, as well as the potential for bonuses. For example, £10,000 invested would mean that after 5 years, the minimum amount returned would be £10,500. In addition to this, any bonuses awarded during the lifetime of the policy would be calculated on £10,500 rather than your initial investment.

It is worth noting that the savings plans are designed to run for the term you select. The Investment Bond is designed to be held for a minimum of 5 years. If you needed to access your money within these timescales, you may get back less than you have paid in. 

Who Can Open a Child’s Savings Account? 

Ultimately, this depends on the type of account you are opening. For example, parents and legal guardians have to open a Junior ISA account. At the same time, anyone, including grandparents, friends or other family members, is eligible to open and make contributions to other savings plans, such as a Children’s Tax Exempt Savings Plan. 

This can make a Children’s Savings Account an ideal option for extended family members to contribute towards their future milestones, rather than focusing on short-lived gifts. 

How Much Should I Save For My Child?

There is no right or wrong answer as to how much money you should save for your child. Depending on your circumstances, some families may choose to save a lower amount of £5-£20 each month, while others may contribute larger sums if their finances allow. Savings accounts, such as the Junior ISA, can also be supplemented with birthday money, Christmas gifts, or the occasional treat when money is available. 

Rather than focusing on the amount for contributions each month, it is easier to focus on consistency with a savings account. Regular savings can often be much more effective than waiting to contribute a large lump sum. Small, regular amounts can add up over your specified period of time to a healthy and meaningful amount for the child by the time they reach adulthood. 

What Should You Consider? 

When choosing the right plan for you and your child, it is important to ask yourself: 

• What are you saving for?
• Each savings account is suitable for different end goals, such as medium-term savings for educational fees or long-term savings for a house deposit. 
• When the money will be needed:
• If you are planning for a long-term savings account, often between 18 and 25 years, investment-based savings plans can offer greater long-term growth potential. 
• How much can you contribute per month/year? 
• There is an affordable option for everyone, depending on their financial situation; for example, our Children’s Regular Savings Plan allows monthly contributions from as little as £5. 

Choosing The Right Children’s Savings Plan: 

The best Children’s Savings Plan ultimately depends on how it can fit into your family’s goals, circumstances and financial situation. This means it may not necessarily be the account that provides the highest returns, but the one that best supports your child. 

Many families choose various plans, such as a Junior ISA, depending on their ability to provide tax-efficient long-term growth. In contrast, a Tax Exempt Savings Plan can offer additional opportunities beyond ISA allowances. 

Saving for your child’s future is about more than simply saving money; it is creating the opportunity to give them the best start in adulthood. Whether you are looking to support university fees, save towards their first car, or simply allow them to explore their money’s potential, starting a savings plan early can make a significant difference to their future. 

Taking your time to understand each available option and selecting the right fit for you and your long-term objectives for your child can ensure that your savings work just as hard as you and your investments do. 

Contact us to find out more, or give us a call on 01226 741 000,where one of our team members will be more than happy to discuss the options so you can decide on the right Children’s Savings Plan to give your child the best possible start to their future. 

This article provides generic information and the writer's opinions and should not be relied upon for investment decisions. Sheffield Mutual has provided no advice. If you doubt whether a savings or investment plan suits you, consider contacting a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk or www.vouchedfor.co.uk. Advisers may charge for providing such advice and should confirm any costs beforehand.