Christmas Saving Ideas For Children & Younger People

The Great £5 In A Christmas Card season is almost with us as relatives use Christmas to pass a little bit of money to their younger relatives and friends. For many it is also an opportunity its to pass a bit more cash on, gift premium bonds or uses the new year to introduce new savings habits. Here is my quick guide to some of money ideas.

Quick Note: Money gifted by parents – if this money generates more than £100 of interest a year, before tax, would be taxed as if it were the adult's, not the child's. The £100 rule only applies to parents, step-parents and guardians, not other family members, such as grandparents, or friends.

As with everything below, rules, rates and products change all the time. Do make sure you check the details independently before you buy/invest/open an account in anything

Childrens' Pensions

What Are They?

I wanted to start with something surprising, because who would have thought that a child could have a pension.

But they can and it can be a great way to save. Each time you add money to a child’s pension, the government automatically adds 20% on top into their pension - even if they don’t have any earnings. This means a contribution of £1,000 could be made up of an £800 payment from you and £200 tax relief payment from the government.

Getting 20% extra just for putting the money in, beats anything else I know of.

You can pay in up to £2,880 each tax year for a child that is not earning anything and they’ll receive their 20% in tax relief from the government. This adds up to a total contribution of £3,600, which is the most that can be paid into any non-earner’s pension, including children.

Advantage & Disadvantages

Money in a pension can’t usually be accessed until at least age 55 and that could get even further away in the future. Pension and tax rules can change, and benefits will depend on individual circumstances. So this is a very long-term investment and one that can't touch for decades to come, so it's not a place to put money they might need before they retire.

It is also usually invested in assets that can go up and down in value, so there is a chance the money will lose value. However over such a long period of time, it nis extremely likely that the value will, rise substantially.

Beware of the costs charged by the pension provider, they might sounds only a small percentage of your fund, but it all adds up and it is something to keep a keen eye on.

Premium Bonds

What Are They?

These were the family favourite. As cosy as a game of bingo, but just like bingo - not as cosy as they first appear. Both, in essence are gambles although Premium Bonds have the very considerable advantage that you can always get your money back.

They offer the chance of winning tax-free money through monthly prize draws instead of regular interest. It is the UK's most popular savings product, with about 22 million investors.

It's like a very special lottery ticket in which you only pay once - but the lottery ticket gets entered for every drawer without the need for ever buying another ticket. What's more, if you decide that this is not for you - you can always take your Premium Bond back and get a full refund - and still keep any of your winnings (if there are some).

The numbers are generated by ERNIE, the Electronic Random Number Indicator Equipment, which picks random premium bonds each month. The top prize is £1 million but there are lots of smaller prizes worth from £25 upwards.

Premium Bonds can be bought for people under 16. Until the child’s 16th birthday, the parent or guardian named on the application looks after the Bonds, regardless of who bought them. When the child turns 16, they’ll manage their own Bonds.

NS&I will send confirmation of any transactions made, prizes won and payment for cashed-in Bonds to the nominated parent or guardian until the child is 16.

Advantages & Disadvantages

The “prize rate” on Premium Bonds has increased from 4% to 4.65% which helps it keep up with rising interest rates on other savings accounts.

That DOESN'T mean you get any money in return, it just means the government pays 4.65% back to NS&I - it puts that in a pot and send the money to those whose lucky number comes up - so this is a gamble.

All prizes are tax free and you can always get your money back. However if you buy £100 of premium bonds today, win nothing and try and cash it back in in 10 years time, although you will get £100 back - that money is worth less because inflation will have eaten away at the value of your Premium Bond stake.

Not that it should matter - but it is fun - they have a Premium Bond app -which is good to use and opens a virtual bottle of Champagne or party streamers when you check it each month and win anything.

Remember, although you can buy Premium Bonds for someone else’s child as a gift, you won’t be able to look after the investment on their behalf or have the Bonds to be repaid to you

Please make sure the parent/guardian is happy to look after the investment for the child (until the child is 16).

According to The Guardian, freedom of information requests to NS&I in 2021 and 2022 revealed that about three-quarters of all premium bond savers have never won a prize.

However, there is some good news for the UK’s 22 million-plus bond holders, the prize fund rate – the proportion of the total amount invested paid out in prizes – is the highest it has been for 24 years.

Junior ISAs

What Are They?

Junior ISAs or JISAs as they are sometimes known are like a bank or building society accounts, the main difference being that the child does not pay any tax on their earned interest.

Advantages & Disadvantages

Not paying any interest sounds great, but then everyone is allowed to earn a substantial sum of interest without paying tax anyway and since younger people are not likely to be earning large sums of cash, the tax advantage isn't huge. Usually, you can earn up to £18,570 a year in income and savings interest combined, before having to pay any tax on the interest paid on the savings.

A bit more detail if you want to know how it works:

For the tax year 2022/23 the following applies

• Your personal allowance is the amount you can earn without paying any income tax – this is £12,570

• £5,000 starting savings rate where the tax rate is 0%, so you can earn this amount in savings interest before paying any tax on the interest

• Your personal savings allowance. This is worth up to £1,000. Basic-rate taxpayers are able to earn £1,000/year in savings interest before paying any tax on it. Higher-rate taxpayers can earn £500 in interest

All of this means that the appeal of the JISA is limited unless the product itself is paying a great rate. At the moment (Nov 2023) there are some appealing rates around.

Remember you have to be 16 to open a regular ISA. So for younger people, a JISA may be worth looking at.

Best Rates

The best rates currently available that I can see are:

• Coventry Building Society 4.95%

• Loughborough Building Society 4.8%

• Skipton Building Society 4.75%

• NS&I 4%

(As of November 2023)

It is striking that building societies are offering the best rates and the banks are not doing very well in their customer offering by comparison. Also check the rates that apply and the conditions for getting your money back easily - as rates and terms change.

By way of comparison, the best ISA I can currently find for someone over 16 is from Metro Bank which is offering 5.11% (Nov 2023)

Bank and Building Society Accounts for Younger Savers

What Are They?

Many banks and building societies will let children open current accounts from the age of 11, while others only offer accounts to those aged 16 or over. Many banks will let 16-year-olds apply but, for children under 16, a parent or guardian will usually have to open the account.

Advantages & Disadvantages

Children's bank accounts don't generally have overdraft facilities (but make sure you check), so this can be a safer way to learn the basics of looking after your money and developing a savings habit.

There don't seem to be a huge range of opportunities here but two I know of include:

• Nationwide Building Society FlexOne pays 2%. You can open it if you are between 11-17.

• Starling Bank Teen Accounts pays 3.25%. You have to be 16-17 years old and so you can only have it for 2 years - which seems a bit of a pain for such a small window.

Generally - they don't offer great returns and while it is a good place to put Christmas money and gifts for birthdays etc, they don't knock my socks off.

Metro Bank have a fun coin counting machine with a big video screen and animations in some of their branches. When they are working (I've found they are regularly not) you can tip your money bag/box into them and it gives you a credit slip which you take to the counter for either cash or to put into your account. You don't need an account to use the service though, which is great. There are also FREE LOLLIPOPS on the counter, which even adults are welcome to take.

Children's Savings Accounts

What Are They?

Children's savings accounts can much more generous interest rates than adult accounts. They are designed as savings pots and not for regular spending accounts.

Advantages & Disadvantages

They can help develop a savings habit and can pay more than adult accounts. However rates vary frequently and what is the best-buy today may not be competitive tomorrow.

Some recent attractive looking rates include:

• HSBC My Savings pays 5%

• Yorkshire Building Society One Day Account pays 4.55%

• Hinkley & Rugby Building Society Young Saver pays 4.45%

Managing Their Own Money

Helping younger people learn how to manage their money and spending is an important part of their growing up. Even if they can get a credit card - it's not always wise encourage younger people to get into debt. One way of bridging the experience between a piggy bank and a full blown credit card - is a debt card especially designed fro younger customers.

Go Henry

Go Henry is a debit card and app that helps your younger relatives not only manage their money but guides them through videos, quizzes and more in the app. As they unlock each mission, they'll make their way through national financial education guidelines—earning points and badges as they go.

Parents have a companion app, so that they can track progress, set flexible boundaries and goals, and get real-time spend notifications.

It's a debt card so they can't spend more than what you have put on the credit. You can also release money, once certain chores have been done.

But there is a cost to the service - at the moment they charge £3.99 per child per month (Nov 2023) and there are free alternatives (see below)

Rooster Money

This is provided by NatWest. There are two options to choose from, but if you want your child to have a physical card, it will cost you £1.99 per month. However, you can get it cheaper if you subscribe for the year for £19.99 (which is equal to £1.67 per month). Any further cards also cost £19.99 per year.

If you have a current account with NatWest, Royal Bank of Scotland and Ulster Bank and online banking, you can get the Rooster Card free for up to three of your children.

Revolut

If you’re looking for a free alternative to GoHenry, then Revolut is a great option. At no cost, you can have one <18 account, which allows you to monitor your child’s spending easily. You can also create goals for them and set a weekly allowance. You will have to create an adult’s Revolut account first, although this is free to do.