Child savings can help your children pay for the important stuff – like going to university, buying their first home or car, or funding a gap year.
And getting kids involved in saving is also a good way to teach them about money.
But with so many different types of savings accounts for children available, it can be difficult to know where to start.
We break down what you need to know about the most common ways to save for your child's future so you can make the right decision for you and your child. Use the links below to jump to the section you're looking for.
Child savings options at a glance
| Junior ISA | Tax Exempt Savings Plan for Children (TESP) | Child Savings Account | Adult ISA | Child's pension | |
|---|---|---|---|---|---|
| Do you have to pay tax on the money you withdraw? | No | No | Potentially, depending on how much the money has grown. | No | Yes |
| Who can open one? | The child's parent or legal guardian | Anyone over the age of 18 | Anyone | Anyone over the age of 18 | The child's parent or legal guardian |
| How much can you pay in? | Up to £9,000 each tax year | Between £15 and £25 a month, or between £165 and £270 each tax year | However much you like | Up to £20,000 each tax year | Up to £2,880 each tax year (£3,600 with tax relief) |
| Who can access the money? | Only the child the junior ISA is meant for | Only the child the TESP is meant for | Both the parent and the child, at any time | Only the Adult ISA owner | Only the child the pension is meant for |
| When and how does the child get the money? | On their 18th birthday, but they can manage their account when they turn 16 | At the end of the payment term, which can be anywhere between 10 to 25 years | The child can access the money at any time from the age of seven | When the Adult ISA owner withdraws the money, they can give it to the child | Only when they can access their pensions (currently age 55) |
| Best for | Saving or investing for adulthood | Saving or investing for a special day | Helping your child learn about money | Saving more than £9,000 each tax year | Helping your child prepare for retirement |
Junior ISAs (JISAs)
Junior ISAs are long-term, tax-free savings accounts for children. They must be opened by someone with parental responsibility, but then anyone can pay in.
The child will be able to access the money when they turn 18.
You can pay up to £9,000 into a child's junior ISA(s) each tax year.
There are two types of junior ISA - ones that save in cash and ones that invest in stocks and shares. A child can have both, but the allowance is per child, not per junior ISA.
OneFamily's Junior ISA
We offer a stocks and shares Junior ISA because we believe this gives your money the best chance of beating inflation, compared to cash junior ISAs. You can start investing from just £10 a month and build a tax-free lump sum for when your child turns 18.
Child savings accounts
Child savings accounts are designed specifically for children. They’re simple cash accounts that grow by building interest.
They can be opened for a child under 18 by someone with parental responsibility for the child. With many providers, the minimum you need to open a child savings account is £1.
The money in the account can be accessed by the child at any time.
Find out more: Junior ISAs vs child savings accounts
Broadly speaking there are two main types of children's savings accounts:
- Easy-access or instant-access savings accounts
- Regular savings accounts
Easy-access and instant-access child savings accounts
These types of child savings accounts let the child withdraw money either immediately or very quickly. But some providers limit how many times you can take money out or reduce the interest rates if you do so too often.
If you want to involve your child in the saving and spending process then an easy-access savings account could be a good choice.
These types of accounts tend to have lower interest rates overall than regular savings accounts.
Regular child savings accounts
With regular child savings accounts, you have to deposit money into the account at least once a month. It can take longer to make withdrawals from than easy-access child savings accounts.
This lack of flexibility is why they usually come with a higher interest rate than easy-access child savings accounts, but if you miss your monthly payments the interest rate might go down.
Children's Tax Exempt Savings Plans (TESPs)
Children's Tax Exempt Savings Plans are tax-exempt investment products only offered by friendly societies.
Unlike junior ISAs, you choose how old the child will be when the money matures, rather than it automatically maturing when they turn 18.
They can also be opened by someone who doesn't have parental responsibility.
You can save between £15 and £25 a month or between £165 and £270 a year into a TESP for a child. As the name suggests, the child won't pay any tax when they take the money out, as long as you’ve kept up these payments and the money isn't taken out before the maturity date.
In most cases, the money will be invested so you need to be comfortable with investment risk as there is a chance the child could get back less than you've paid in.
Find out more: Junior ISAs vs Tax Exempt Savings Plans for children
Your own ISA
Saving for your children in your own cash or stocks and shares ISA could be an attractive alternative to a junior ISA. With the current annual ISA limit standing at £20,000, it’s possible to save or invest more for your children than in a junior ISA – but this will mean limiting the amount you can save for yourself.
You'll also be able to withdraw the money at any time – which could be a good or a bad thing, depending on your point of view. The ISA stays in your name and doesn’t become the legal property of your child at any point.
So, you'll stay in control and be able to give your child the money when you choose, but it does mean you could dip into it more often than you planned to.
Find out more: What are the differences between junior ISAs and adult ISAs?
Advantages:
- There's no tax to pay when money is withdrawn
- The annual limit for your ISA is £20,000, which is higher than a junior ISA’s £9,000 annual limit
- If you or your child needs the money before they turn 18, you can withdraw it at any time
Disadvantages:
- The money isn’t locked in for the child, so the savings could be dipped into over time
- Any money paid incomes out of your own ISA allowance, leaving with a lower allowance for yourself
OneFamily's Stocks and Shares ISA
We offer a stocks and shares ISA because we believe this gives your money the best chance of beating inflation, compared to cash ISAs. You can start investing from just £25 a month by direct debit and build a tax-free lump sum.
Children’s pension
If you want to take a really long-term approach, you could consider setting up a pension for your child – perhaps alongside one of the other options on this list. Under current rules, the child will be able to access the money when they turn 55.
You can save up to £3,600 a year on a child’s behalf in a self-invested personal pension (SIPP). Because tax relief can be claimed on pension contributions, you can save this much but only actually pay £2,880 (or £240 a month), because HMRC pays back the tax you've already paid on this money.
It's worth noting that child pensions take the child's tax allowance into account, not the parent's, so even if you pay more than 20% income tax, your child won't get more than 20% in tax relief.
In general, children’s pensions are designed to be invested in the stock market and related assets. Your child could get considerable returns for having their money locked away for 50 years or more, but those returns aren’t guaranteed.
Advantages:
- Tax relief is paid on contributions
- There's good potential for the money to grow as it's invested a long time
Disadvantages:
- The money can’t be accessed until age 55, which means it probably can’t be used for university fees or a first property purchase
- The tax treatment of pensions may change in a negative way in the future
