Martin Lewis: How should you invest your children’s Christmas money for them?
Slade are on the radio, there’s tinsel everywhere and supermarket shelves are stacked high with mince pies.
Christmas is a-coming. However, it isn’t all about piling up the presents – many parents and especially grandparents give children cold hard cash. So where do you put it?
First, discuss with children whether the cash is for spending or saving. Usually a mix of both is the best answer – allow them to spend some now, while putting some aside for the future.
Getting cash gifts is a great opportunity to start some financial education. So if they’re old enough, sit down with them, and pick the savings account together.
The top paying children’s savings accounts
The www.halifax.co.uk Kids’ Regular Saver pays 4.5% AER fixed for a year. You can pay in between £10 and £100 per month, and can’t withdraw any money until the year is up.
While it can be opened online, once open, you can only access the cash via a branch. After a year, the rate drops, so get your child to set a diary reminder and move their money to a better account when it does.
If you want to put in a lump sum, if they’re aged 11 or over, the www.santander.co.uk 123 Mini account pays 3% on £300-£2,000 and gives a debit card to use in shops. However, if they’re younger, you’ll need to open it for them, and for that you must have your own Santander current account.
There’s also the www.hsbc.co.uk My Savings account which pays 2.75% AER on up to £3,000 and www.nationwide.co.uk Smart Limited Access account pays 2.5% AER on savings up to £50,000, though it only allows you to withdraw cash once a year (if you make more, the rate drops to a rock bottom 0.25%).
As the rate on these accounts are variable, it can move at any time. For a full breakdown of accounts see www.mse.me/childrenssavings.
The top accounts with cards so they can spend
The www.hsbc.co.uk account above also allows access to a debit card with a separate current account from age 11 called MyAccount. Or www.tsb.co.uk under 19s account pays 2.5% on balances up to £2,500 and gives either a cash card or a debit card from age 11.
There are also prepaid cards available (for children aged over eight), which often offer extra functions, but you have to pay. www.nimbl.com is £15/year, www.osper.com is £2.50 per child per month (so £30 a year) and www.gohenry.co.uk is £2.99 per child per month (so £36 a year).
All three cards allow you to spend in shops (though rightly prohibit spending in places primarily for gambling or alcohol) and withdraw cash from ATMs for free (capped at one per month with Nimbl).
Can grandparents open the account?
For younger children, an adult needs to open the account on the child’s behalf and be a trustee or signatory (you’ll need ID for them such as a passport).
Your name will then be on the account with the child’s, but it’ll be your signature that controls it, not theirs. Some accounts are parents only, but grandparents can also do this with the Santander, Halifax and Nationwide accounts.
Junior ISAs allow you to lock cash away until they are 18
Junior ISAs (JISAs) are special savings or investment accounts, that you can save a set amount in each tax year. This year it’s £4,128. Crucially in these the money is locked away until your child’s 18th birthday, and from that point on it is their money to do with as they will.
The interest on Junior cash ISAs is tax-free. Yet like adults, children can earn £11,500 a year before paying tax, but unlike adults most don’t have any income from working, unless your children have enormous savings, their money isn’t taxed anyway, so there’s no gain.
For full best buys see mse.me/juniorisa.
If you’ve got an old Child Trust Fund, a JISA is probably better
Children aged six to 15 may still have a Child Trust Fund (CTF), which were opened automatically by the government.
If you’ve still got one and it’s the savings version (not the stocks and shares) it’s likely to be paying rubbish interest, and you’re allowed to transfer to a Junior ISA that pays more.
To transfer it just apply for a JISA then fill in the transfer forms, so for most it’s a no-brainer. For more info see mse.me/childtrustfunds.
Martin Lewis is the founder and chair of MoneySavingExpert.com.