Want to set up a child savings account, need advice!

dellboy102

Hi everyone.
My parents want to set up an account for my little sister, shes 13 years old and have asked me to look for "a good one".

They receive child benefits of about £60 a month which they want to put straight in (i'm assuming this would be a direct debit/standing order sort of thing) and also tax credit too.
I was just wondering, is the above classed as income from parents, I was reading somewhere on the site that if the interest is more then £100 per year then you have to start paying tax.

If a child generates more than £100 interest in the course of the year from money specifically given by each parent, this income is taxed at that parents’ tax rate.

Also we dont intend taking any money out until shes at least 17 but access to it when needed would probably be better.

I've looked at nationwide smart account so far and the rate their doesnt seem too bad at 5%, need to look at a few others.

Thank you for reading, Replies much appreciated as I wanna choose the best account for her as she will probably have it for at least 4 years and I dont know where to start!

Cypher

just doing a very quick calc,

£60 per month into a Halifax Childrens Regular Saver (10% AER)

60x12 = 720 but as its only going in at £60 a month so the average balance over the 12 month period is only £360 @10% = £36 interest
so no issues with the £100 tax thing in year 1

The regular save then moves the balance into a Halifax Save4It account at the end of the year, that pays approx 5.05% AER

Year 2
regular saver £36 as year one
save4It balance = £756 @ 5.05% = £38.18 interest
Total Interest = £74.18 (no tax issue)

Year 3
regular saver £36 as year one
save4It balance now = 1550.18 @ 5.05% = £78.28 interest
Total Interest = £114.28

total balance at this point would be £2384.46

Tax payable on the interest above £100 would be £2.85 (I'm not sure the tax man will come chasing after this though)

Also I don't think there are any tax issues if the money is given to your sister by someone other than a parent. So a Grandparent, Family Friend, Neighbour etc may be the one paying in the £60 per month

I've only used the Halifax as an example because its an account I'm familar with.

The halifax accounts mentioned above have to be closed following the aniversary date following the childs 16th birthday. So you may not get a 4th year

After your sister is 16 the money could be moved into a tax free ISA or some other regular saver which might pay slightly better rates than an ISA.

dellboy102

Thank you very much cypher for your post.
I think I'll tell them to go for the halifax account as it seems to have the best rate (at least for the first year) and as your calculations show the interest thing should not be an issue (although I have just found out more money may be going in) but still I doubt we will hit the £100 mark in the first year.

Thanks again!