What is the actual interest rate?

Easter_Road

I'm looking to put £5,000 away for my son until he is 18. I'm going to put it in an account (rather than shares) but want to make sure we get the best interest rate.

The best rate according to one of the comparison sites is 6.2% for a childrens bond lasting 4 years (with the Abbey). Well at least I think it is 6.2% because it quotes me 3 figures AER & Gross are 6.2% Net is 4.96%.

As this is all he will have (savings wise) will he get the 6.2% as he doesn't pay tax or is it the 4.96%?

Finally does anyone know if this is the best deal around? I'm happy to tie the money up for longer if the interest rate is good.

Thanks

Easter Road

Lokolo

If the child earns over £100 in interest then he is taxed anything over, somethin along those lines. It stops family from dumping their savings in children and avoiding tax.

Um to be fair thats a good deal. However, for 4 years its quite a long time (you'd be pretty annoyed if interest rates are 10% in 3 years for example), but it is your choice.

opinions4u

Lokolo wrote: »

If the child earns over £100 in interest then he is taxed anything over, somethin along those lines. It stops family from dumping their savings in children and avoiding tax.

The above is accurate if the capital has been given by parents (if over £100 is earned the whole amount is taxed as parent's income, not just the amount over £100).

If, however, it has been gifted by grandparents (for example), the interest earned can be set against a child's individual tax allowance and usually allow a parent to register the child's account for gross interest.

Easter_Road

Hi

Thanks for the quick reply, never really thought that interst rates might go that high, it does say that if I withdrew the money I would lose 180 interest so if they went through the roof I suppose I could always take it out and take a hit.

Easter_Road

The money did come from his grandad although it is in my account as he gave it to me to sort out for him. Will that make a difference

opinions4u

Easter_Road wrote: »

The money did come from his grandad although it is in my account as he gave it to me to sort out for him. Will that make a difference

Yes.

While it is highly unlikely that the Inland Revenue will ever challenge things, a note from Grandad stating the funds should be invested in the children's names might be worth stashing away with the paperwork.

Easter_Road

Thanks for you help