Child Savings Account vs ISA in parents name

RobertoBaggio90

Hi, apologies if the answer to this question is obvious but i'm not particularly familiar with all the different types of savings accounts that are available and their advantages. 

Is there any advantage of saving £50 a month in future saver accounts for each of my children versus me just saving an extra £50 a month for each of them in my ISA? I don't use all of my annual ISA allowance so the extra amount won't cause a problem. When i took out the future saver accounts i was under the impression that i was getting a better interest rate and a tax advantage but on reflection it seems i'm not getting either and i'd be better off just putting it in my ISA. Thanks in advance.

wmb194

RobertoBaggio90 said:

Hi, apologies if the answer to this question is obvious but i'm not particularly familiar with all the different types of savings accounts that are available and their advantages. 

Is there any advantage of saving £50 a month in future saver accounts for each of my children versus me just saving an extra £50 a month for each of them in my ISA? I don't use all of my annual ISA allowance so the extra amount won't cause a problem. When i took out the future saver accounts i was under the impression that i was getting a better interest rate and a tax advantage but on reflection it seems i'm not getting either and i'd be better off just putting it in my ISA. Thanks in advance.

The advantage is that the money would be in an account that they're the beneficial owners of so e.g., if you divorced or died it wouldn't form part of your assets. The downside is that it's theirs at 18 (16 in Scotland).

If you want to gun for better returns you could look into investment ISAs or JISAs.

I'm guessing you're referring to the Nationwide Future Saver account.

https://www.nationwide.co.uk/savings/childrens-future-saver/

refluxer

Nationwide's Future Saver did actually pay a decent rate when it was first released and for a long time after that (compared with similar children's accounts available in other high-street banks and building societies) but the rate has dropped away in recent years, making it less competitive. It's currently paying 3.30% and, while this isn't the best rate for a children's savings account, it isn't the worst either, by a long way. It is due to drop to 3.05% on 1st October, though.

When paying into a Future Saver, the (potential) tax advantage is that the money belongs to the child and any interest earned falls under their own tax allowances but the caveat to that is if money given to a child earns more than £100 in interest in any one tax tax (£100 per parent, so £200 for a couple), then the whole amount then counts towards the parent's PSA and is therefore potentially liable to tax at the parent's own rate.

Whether it's more beneficial for you to pay the money into your own ISA will depend on the rate of that account and your own ISA allowance and tax situation. If you know you don't pay tax on your savings interest, for example, and aren't likely to, then that money might be better off being paid into a top-paying Regular Saver account in your own name, which could potentially earn you a higher rate.

If you know you do pay tax on your savings interest though (and your children could end up earning more than £100/£200 in interest from money given to them by you) then, as mentioned above, the best way to avoid any tax issues when saving for a child is to pay into a Junior ISA in their name. The money is completely inaccessible in a JISA though until the child gets to the age of 18, when it becomes automatically their's. The best Junior Cash ISAs are currently paying around 4% and, if the children are younger, then a Junior Stocks & Shares ISA may also be suitable.

It's worth noting that once the children get to age 11, they can open a FlexOne current account with Nationwide and get access to a FlexOne Saver which currently pays 5% on balances up to £5000. They'd be free to do what they like with that money at any time though, of course.