Three terrific savings accounts for kids!

If you're looking for a new home for your child's savings, you've come to the right place.

As Harvey Jones commented a few weeks back, it's rubbish to be young. After all, young people are growing up in a world riddled with debt, they're struggling to get on the property ladder, and they're also going to be stuck funding the retirement plans of an ageing population. What a cheery picture.

But the difficulties the younger generation are facing only highlight the importance of having a nest egg to fall back on. And that's why it's crucial to start saving for your children as early as possible - that way you'll be helping to prepare them for whatever life throws at them.

You can save for your kids in a number of ways. One of the best options is to open a Child Trust Fund account. Or you can simply put money in a cash ISA or invest in the stock market.

But there is another option. And that's to open a regular savings account.

The benefits

What I really like about regular savings accounts is that they allow you to put aside a regular amount of money each month. So even if you can only afford £10 each month, you can still save!

And don't forget that children can earn £100 in interest, tax-free, every year on money given to them by each parent or step-parent. Even better, grandparents and other adults who give money to children don't have to pay tax at all - even if the interest exceeds £100 a year.

All you need to do to ensure your child's interest is paid without tax is submit an R85 form to your lender's local branch.

The top three

Unfortunately, just like 'adult' savings accounts, the falling base rate has squashed the interest paid on many children's savings accounts. But on the plus side, there are still some decent rates out there. So let's check out the top three accounts:

The best rate

If your main concern is how much interest you'll be receiving on your child's savings, the Halifax Children's Regular Savings account is the clear winner. This account pays an impressive 8% AER which is fixed for one year.

To qualify for this rate you'll need to pay in between £10 and £100 each month and you'll need to ensure you don't miss any monthly payments. You also won't be able to access these funds during the year - but considering you'll be saving for your child's future, that shouldn't be too much of a problem.

Easy access

If the idea of having no access to your child's savings for one year really doesn't appeal, the Nottingham Building Society's Children's Regular Saver account might be more up your street. It pays a decent rate of 5% AER which is fixed until 15 April 2010. And what's so fantastic about this account is that you can make unlimited withdrawals without affecting the interest paid!

You'll need to pay in between £10 and £100 each month, but you won't be penalised if you miss a payment.

However, there is a catch - and it's a big one. You can only open and manage the account in one of the building society's 32 branches which are based in Nottinghamshire, Derbyshire, South Yorkshire and Lincolnshire. So that means many people won't be able to access this account. And I think this lets down what is otherwise a good account.

Larger monthly payments

As you'll probably have noticed, both of the above two accounts only allow you to pay in a maximum of £100 each month. So what happens if you'd prefer to pay in a larger sum?

Fortunately, the Children's Regular Saver account from Newcastle Building Society has the answer. This account allows you to pay in a minimum amount of £10 each month, but a maximum of £1,000!

The account is also pretty flexible, allowing you to make up to six withdrawals per year and you won't be penalised if you miss one monthly payment (and one only).

But of course, there has to be a drawback, and that's the account's interest rate. Sadly it only offers a rate of 2.1% AER. And this rate is variable so it could change at any moment. That said, hopefully interest rates will start to climb again soon so you could find your rate increasing over coming months.

Decisions, decisions

Ultimately, choosing which account to open for your child is going to depend on your own circumstances. Personally I think the Halifax Children's Savings account wins hands down, purely because it offers a highly competitive interest rate of 8%.

But the downside is you'll need to be disciplined with this account and lock up your funds for one year - and that's not always practical. So if it's flexibility you're after, you'll need to choose between the Nottingham account or the Newcastle account - and let's face it, that decision is partly going to depend on where you live!

Of course, a regular savings account might not be the right solution for you and your child, and as I said earlier, there are many other ways to save. But whatever you decide, you'll be helping to save for your child's future. And nothing is more important than that!

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