Opening a bank account for your children has several benefits. In addition to being a safe place to deposit funds for every eventuality in their lives, it is also a fantastic way to teach your offspring about money.
There are several different things to consider when it comes to opening a savings account for your child, so here are some key points.
Saving for the future
Even before you give your child some pocket money or a weekly allowance, it is a good idea to set up a standing order so they have a lump sum to spend on important expenses such as driving lessons or a rented accommodation deposit.
By showing your child that the money you have been putting away has gradually been increasing through interest, they will be encouraged to save as well.
Any child up to the age of 18 can open a savings account with just £1. Depending on the account, once they reach the age of seven children can deposit and withdraw money themselves. What’s more, as the amount you pay in is likely to be fairly low, the bank won’t need to deduct tax on interest.
For our American counterparts, a savings account boasts numerous benefits. Aside from the accrued savings, one of the best benefits generally appears at tax time. However, the tax legislation tends to change every year so make sure you get tax deduction help from a qualified professional.
If you son or daughter was born between 1 September 2002 and 2 January 2011, they will also qualify for the Government’s Child Trust Fund scheme. Parents or guardians can add up to £3,720 a year, but the money cannot be taken out until they’re 18.
Types of account
There are two main accounts available to introduce your children to banking.
- Easy and instant access accounts. Even though you or your child can deposit or withdraw money at any time, you will typically get a lower interest rate. If you want your child to regularly come into contact with money then this is a good option.
- Regular savings accounts. This kind of bank account is designed to encourage saving with regular deposits. Although accessing money is made more difficult, you will benefit from a higher rate of interest. However if you miss any monthly payments, the rate at which your money grows may be reduced.
Don’t be tempted by bank freebies such as piggy banks or toys. Instead choose an account that will benefit your child in the long run.
The value of money
By becoming familiar with banking at an early age, your child will understand how interest works, the importance of budgeting and why saving can affect the future.
Giving your child the responsibility to make decisions regarding money as well as depositing and withdrawing funds is a vital life lesson that they will carry on into adulthood.
Even though your child is too young to be earning money from a job, it is easy to teach them how getting paid into an account works, through household exercises. You can find some old wardrobe items, sell unwanted clothes online, and show them how receiving cash for a product or service works.