Children saving more but research shows kid’s accounts pay poor rates

News - Banking

Written by Ray Clancy

Friday, 07 May 2010 10:00

Children are becoming increasingly aware of their personal finances and how to control their money with more of them saving, research reports show.

Some 69% have accounts set up by their parents and they want to become responsible for their own money by the age of 13, according to research from the Halifax. Some 37% manage their account themselves, taking money into a branch.

The research also shows that when children are asked what financial subjects they would like to learn most about, savings came in top for 77%.

A report from Engage Mutual Assurance shows that children continued to save throughout the recession, even if their parents were less likely to. It found that 68% of parents gave their children pocket money and did not reduce the amount through the tough economic climate.

Children in Glasgow got the most pocket money at an average of £4.87 a week compared Southampton where it was just £2.69.

‘From simple budgeting, to the concept of work and reward, weekly pocket money can be a good springboard for children to learn some important life skills,’ said Karl Elliott at Engage Mutual.

David White, chief executive of The Children’s Mutual, welcomed the research. ‘Children’s growing interest in finances and money is a positive step forward and an important part of increasing understanding about money matters across the country,’ he said.

‘Families are taking much more of an open and active interest in money and children are becoming more inquisitive about phrases such as credit crunch and what they mean,’ he added.

But further research shows that children’s saving accounts offer poor value. The average account is paying a miserable 1.13% so child with £100 in the average account for a year will earn just £1.13.

‘It is important to get youngsters into the habit of saving. There are a wide variety of different children’s savings accounts available with some that offer free gifts. But it’s the interest rate parents should examine with great detail,’ said David Black, banking specialist at Defaqto which monitors financial products he advises.

‘With interest rates varying from as little as 0.05% up to as much as 6% there will be a substantial difference even on relatively small amounts saved. Sadly accounts paying the highest interest rates do not offer free gifts,’ he added.

Halifax has had the best buy children’s account for years with its Children’s Regular Saver, paying 6% on savings of at least £10 a month. Maximum investment is £100 a month. For those who don’t want to make the commitment to regular savings, Bath Investment Building Society offers a rate of 5% on its Future Builder account but only on balances up to £500 and above this level the account pays just 1.1%. Santander’s 11 to 15 Bank Account also pays 5% on sums up to £500 but to qualify you must make regular monthly savings and the parent or guardian must have a Santander primary bank current account.

Defaqto also points out that most children will not have enough income to pay tax so make sure that, if eligible, an HM Revenue and Customs R85 form is filled in at the time of opening the account in order to ensure that gross interest can be received.