Children are growing up in a world that is increasingly cashless, so the days of giving them a tenner as pocket money at the end of the week are numbered.
While King Charles’ face will start appearing on UK banknotes this summer, it’s very possible that your kids won’t ever really come into contact with one.
There are plenty of ways to put cash away for your child and to give them money so they learn how to budget and manage their finances.
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You may have opened a child savings account or a junior ISA for them when they were born, starting their savings journey.
But if you put their pocket money into an ISA each month where they can’t access it until they’re 18, they’ll probably be less than impressed.
So, once they reach an age where they’re looking for a little more financial independence, it might be a good idea to help them open a junior current account, where they can access some of their funds.
Many providers now allow children to do this from as young as 11.
Why should I open a child bank account?
Opening your first bank account or having access to your first debit card is not just a memorable rite of passage, it’s also an important step in your financial education.
“According to a well-cited Cambridge University study, children’s financial habits are formed by the age of seven”, says Louise Hill, co-founder and chief executive of pocket money app GoHenry.
This means that, “with the lack of financial education on the curriculum in primary schools in England, kids are currently missing out on a huge opportunity to master the money skills that will influence the financial decisions they make for the rest of their lives”, she adds.
“Kids who aren’t good with money become adults who aren’t good with money, and we need financial education from a young age to break this cycle”, in Hill’s view.
Having a bank account can help tackle this challenge by teaching kids the importance of saving and budgeting from an early age. But choosing the right provider and account is important, particularly if you are worried about the risks that could come with this newfound freedom.
There are a range of options available to parents who want to instil good money habits in their children while also giving them some financial independence, from child current accounts to pre-loaded debit cards.
We answer some frequently asked questions about these products, before highlighting the providers that offer them.
How do I choose a child bank account?
When choosing a child account, many of the considerations are the same as when opening an account as an adult. You might want to look at the interest rate being paid and the level of customer service.
The Bank of England base rate is currently 5.25%, having increased 14 times between December 2021 and August 2023. This means banks are now paying higher rates to account holders, but it is still worth shopping around to make sure you get the best deal. If you sit down with your child to do the research together, you could even turn it into a lesson on how to be financially savvy.
On top of this, there are a few additional features you may want to consider when choosing a child account.
For example, when you open a junior account with Lloyds, HSBC, Halifax or Bank of Scotland, you automatically open a linked child savings account too. The idea is that this can help your child develop a good savings habit from an early age.
Security features are another important consideration. You should look carefully at the terms and conditions on each account to find out how much your child will be allowed to spend or withdraw in a single day.
If your child isn’t quite ready for a bank account, then a prepaid debit card – also known as a pocket money card – could be a good alternative. Providers like GoHenry offer these, and allow you to pay pocket money to your children digitally.
“Giving digital pocket money allows children to practise financial independence in a safe environment and with parental oversight, forming good habits they can take into adulthood”, explains Hill.
“With pocket money apps, kids are able to easily track and automatically set aside their savings, so they can see their money grow which, in turn, empowers them to make smarter money choices”, she adds.
What is the difference between a child current account, a child savings account, and a junior ISA?
There are a few different types of accounts you can open for your child, depending on whether you are looking for a day-to-day spending account or more of a savings vehicle.
Child current accounts should only really be used for pocket money, any part-time money your child starts earning aged sixteen, and day-to-day spending.
Once the balance in the account reaches a larger sum, it would be better off in a child savings account or, even better, a junior ISA, where the interest rate will usually be higher.
The same goes for adult accounts – large sums of cash are better off in a savings account or an ISA. If you’re looking to polish up your own finances at the same time as your child’s, we’ve pulled together a roundup of the best adult rates on the market right now in our monthly savings guide and monthly cash ISA guide.
The benefit of a junior ISA over a child savings account is that it is a tax-efficient way of saving and investing. Your child can put up to £9,000 in a junior ISA each tax year, and any income and capital gains will be shielded from the taxman.
If your child is young and has a long investment horizon ahead of them, they might even want to opt for stocks and shares in their junior ISA rather than cash, as investment returns almost always beat cash over the long run. This was even the case last year, despite rising interest rates.
Will I have to pay tax on any interest my child earns?
Like adults, children do have to pay tax on any interest they receive. On most accounts, the rules are the same as with adult accounts:
- Assuming the child doesn’t earn any money, they can use up their personal allowance of £12,570.
- Again, assuming they don’t earn any money, they will also qualify for a £5,000 starting rate for savings. This is available to anyone (child or adult) who earns less than £17,570.
- In total, this means your child can earn up to £17,570 in interest before they have to start paying tax.
Given that most children don’t earn money, it is unlikely that their savings will be large enough to generate this much interest in a single tax year.
However, parents beware. If you have gifted your child the money in their account, you will be liable for tax as soon as they start earning £100 interest on the money in question. Familiarise yourself with the rules to avoid being slapped with an unexpected tax bill.
Do child bank accounts have spending controls?
Building financial independence is an important part of growing up, and opening a bank account is a crucial first step. However, giving your child free reign can be a daunting prospect.
Luckily for parents, child accounts have a range of spending controls.
First and foremost, child accounts do not offer an overdraft facility, so you don’t need to worry about your child getting into debt.
Furthermore, some providers such as Lloyds, Halifax, and Bank of Scotland let parents keep an eye on their child’s spending through their mobile banking app. They even have a feature which blocks children from spending money in certain places, such as bars, pubs and off-licences.
Pre-paid child debit cards, which are different to child bank accounts, often come with similar controls. For example, Natwest’s Rooster Money card (for children aged 6-17) and GoHenry’s card (for children aged 6-18) both allow you to set spending limits. You can also receive real-time notifications every time your child makes a purchase.
What happens when my child turns 18?
Most banks will automatically convert your child’s account to an adult account when they reach a certain age. This won’t always be 18. For example, the Santander 1|2|3 Mini Current Account does this on their nineteenth birthday.
If you decide to opt for a child debit card provider like GoHenry, this won’t happen. Instead, your child can continue using the card until it expires, at which point you will need to contact GoHenry to cancel the account.
Which providers offer child bank accounts?
The good news for parents is that quite a few providers offer this type of product, so you have a fair amount of choice when deciding where to open an account with your child. We share a round-up of nine providers below.
Natwest Adapt Account
- Age range: 11-17
- Interest rate: 2.70% AER
- Important information: If your child is under 16, you will need to open an account with Natwest in order for them to qualify, if you don’t have one already.
Starling Bank
- Age range: 16-17
- Interest rate: 3.25% AER on balances up to £5,000
Lloyds Smart Start
- Age range: 11-15
- Interest rate: Interest is not earned on the current account, only the linked savings account.
- Additional features: With Smart Start, your child gets two accounts with one application – a spending account and a savings account. The idea is that this helps to establish a healthy savings habit at an early age. The savings account pays 3.15% AER on balances of £1-1,000, and 1.40% AER on balances over £1,000. Parents can also keep tabs on their child’s spending through their mobile banking app. Spending is blocked in over-18 outlets.
- Important information: For your child to qualify, you will need to open a current account with Lloyds, if you don’t have one already.
Barclays: BarclayPlus Account
- Age range: 11-15
- Interest rate: 0.10% AER on balances of £1-1,000; 0.60% AER on balances of £1,000 plus.
Nationwide FlexOne Account
- Age range: 11-17
- Interest rate: 2.00% AER on balances up to £1,000
HSBC MyMoney Account
- Age range: 11-17
- Interest rate: Interest is not earned on the current account, only the linked savings account.
- Additional features: With MyMoney, your child gets automatic access to a MySavings account too. This linked savings account currently pays 5.00% interest AER.
Santander 1|2|3 Mini Current Account
- Age range: 13-17
- Interest rate: 1.00% AER on balances up to £999.99; 2.00% AER on balances from £1,000 - £1,499.99; 3.00% AER on balances from £1,500 - £2,000
- Important information: Under 13s can have an account, but it will need to be opened in trust by an adult and managed on behalf of the child.
Halifax Expresscash Account
- Age range: 11-17
- Interest rate: 0.50% AER on balances from £1-£999.99
Halifax Money Smart Account
- Age range: 11-15
- Interest rate: Interest is not earned on the current account, only the linked savings account.
- Additional features: With Money Smart, your child gets automatic access to a linked savings account. This linked account currently pays 3.40% AER on balances of £1, and 1.44% AER on balances over £1,000. Parents can keep tabs on their child’s spending through their mobile banking app, and spending is blocked in over-18 outlets.
Bank of Scotland
- Age range: 11-15
- Interest rate: Interest is not earned on the current account, only the linked savings account.
- Additional features: With Smart Start, your child gets two accounts with one application – a spending account and a savings account. The savings account pays 3.15% AER on balances of £1-1,000, and 1.45% AER on balances over £1,000. Parents can also keep tabs on their child’s spending through their mobile banking app. Spending is blocked in over-18 outlets.
- Important information: For your child to qualify, you will need to open a Bank of Scotland current account with Vantage, if you don’t have one already.
Alternatives to a child current account
If your child isn’t quite ready for a bank account, you could explore these pocket money cards instead.
One thing to bear in mind is that these cards aren’t typically covered by the Financial Services Compensation Scheme (FSCS). This means that you could lose any money held on them, if the provider runs into financial difficulty.
Natwest: Rooster Money (age 6-17)
Natwest offers a prepaid debit card service called Rooster Money, intended for children aged 6-17. Parents can top the card up with money from their own account.
Anyone can get a NatWest Rooster Money card for their child, regardless of whether they are an existing NatWest customer or not.
If you are a NatWest customer, you can get up to three Rooster cards per family for free. If you aren’t an existing customer, however, the subscription fee is £1.99 a month or £19.99 a year.
This card comes with a range of security features, including payment limits and real-time spending notifications.
GoHenry (age 6-18)
GoHenry also offers a prepaid debit card service for children aged 6-18.
After a 30-day free trial, parents will need to pay a subscription fee of £3.99 a month. This includes one free monthly top up. After that, additional top ups will cost 50p a time.
If you opt for the “plus” service for £5.99 a month, you can unlock additional features like 4.50% interest (AER) on savings and unlimited free top ups.
All GoHenry cards come with spend notifications, which parents receive directly to their phone. There are also flexible parental controls that you can access within the app.
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