Cash Flow Kids

How to save for children and young people

Q: Can someone under 18 have an ISA?

A: The Junior Isa is for children under the age of 18. Children can't take out the cash so it means the money is beyond temptation and a nice gift when they turn 18 - when the ISA changes into an adult ISA.

The maximum you can pay into a Junior Isa is £9,000

Some of the highest paying Junior ISAs are:

• Bath Building Society - 5.29% (can be managed online)

• Beverley Building Society - 5.2% (can only be managed by post or going into the branch)

• National Savings & Investments - 4% (can be managed online)

Rates change - so do check the best buy tables

Withdrawal from a junior ISA can only occur after the child reaches 18 years of age.

Q: Can children have a shares ISA?

A: Yes - you can open a junior investment ISA. Although there is a risk in investing in shares which may turn oyu off the idea, children are well placed to benefit from stock market investments - perhaps even more than adults. That's because they can wait out any short-term dips in the market and generally the FTSE rises over time and so this really might be a good thing to consider.

It also has the advantage that the large gains you hope will accrue, should not be taxed, as they are in the ISA they are protected from capital gains tax and dividends tax.

Q: What about Premium Bonds?

A: You can buy between £25 and £50,000 worth of premium bonds in a child's name. Every month the bonds are entered into a prize draw and the top prize is £1 million, Any winnings are tax-free and at anytime the bonds can be exchanged back into cash - for the full amount you paid.

I have changed bonds back into cash and it is very quick and efficient and owning them is quite fun.

Then, when the child turns 16, they can have the premium bonds signed over to them.

Q: Here is a wild one - I've heard you can have a chid's pension - is that right?

A: Yes - in short - although this is a hugely long investment decision.

Your child will be able to access the money saved in the pension when they reach 55 - although who knows what the rules will be then. You can contribute up to £2,880 a year for a child's pension - which isn't much but then you are talking about a very long time in which the money can rise tax-free.

Q: What about plain vanilla children' savings accounts - are there special deals for under 18s?

A: There do seem to be some great accounts for younger people. The best one I can find is Nationwide's FlexOne Saver which pays 5% on deposits of up to £5,000, though it's only available if you open (or already have) the FlexOne current account. You can apply online if the child is aged 13 to 17, though 11 and 12 year olds will need to apply in branch with their parents/guardians.

You can get an even better account if you go for a children's regular savings account. For instance the Saffron Building Society pays 5.55% on monthly deposits of between £5-£100. But it doesn't seem hugely better than the normal account.

Control: According to MSE, who can control the money "usually depends on the age of the child and how you've opened the account. Typically, if your child is under eight the account will be held in trust by the adult(s) who opened it. However, some accounts allow you to remain a signatory until your child is 16.

Many accounts have terms and conditions stating withdrawn money must be used "for the benefit of the child", but of course, this covers a wide variety of definitions."

Q: Are there any complicated tax rules?

A: The main thing to be aware of is the '£100 rule for parents' whereby savings given to a child by a parent or step-parent is taxed at the parent's tax rate if it generates more than £100 a year in interest.

Importantly, this doesn't apply to grandparents and other family members or friends.

Like adults, children are entitled to a Tax-Free Personal allowance of £12,570 in the 2024-25 tax year.

Your Personal Savings Allowance is £1,000. The personal savings allowance means everyone who pays basic 20% rate tax (so those who earn more than the £12,570 personal tax allowance but less than the £50,270/year limit for the higher rate of tax) can earn £1,000/year in savings interest before paying any tax on it.

Then for those whose income is below £12,570, they get an extra tax-free allowance - called the Starting Savings Allowance of up to £5,000 for their savings.

So this all adds up to a fair chunk of money you can earn tax free, As the MSE calculates "Some can have up to £18,570 tax free...That's because you get your personal allowance before you start to pay income tax (£12,570), plus the starting rate for savings (up to £5,000) and the personal savings allowance (£1,000) all in combination"

All rates change all the time as do the regulations - so do check before you dio anything