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Savings Accounts For Children



By 2006 the average student is likely to graduate with over £20,000 of debt. To enable kids to cope with this sort of challenge in the future, or to put a deposit down on a house, best start saving as early as possible.

There are over 100 savings accounts specifically for children on the market. Accounts often pay a higher rate of interest compared with other accounts, perhaps to instill in kids the savings habit. With their own accounts, children can learn how to manage their cash, and how increased savings mean more interest - a valuable lesson for the future. They will also understand how to save towards a particular goal.

Freebies

Accounts normally come with free gifts - be it magazines, CD vouchers, moneyboxes and so on. The freebies act as further inducement to the kids. But be warned - sometimes you end up paying for the extras with lower interest rates. And the less gimmicky accounts can produce superior returns.

Most products can be opened from birth. They don't have cheque books or payment cards, but some have cash cards allowing withdrawals from the age of seven. Accounts are largely branch-based, which teaches kids how to transact face to face. A few have internet access, for the more technically savvy youngster.

Tax-exempt

Remember to make use of the child's income tax-free allowance, fill in form IR85. This will allow interest to be paid gross. Bear in mind only the first £100 of interest paid on money from a parent is tax-free. The rest is taxed as if it was the parent's. If the kid receives considerable sums from grandparents and others, as well as from parents, consider setting up a separate account.

From 2005 new Government-sponsored Child Trust Funds will enable parents to save up to £1200 a year for kids without incurring tax.

Investments.co.uk is the definitive guide to making the most of your money. You can also visit us at www.pensions.co.uk to help you plan a financially secure retirement.

Alliance and Leicester
Cahoot
Egg
ING Direct
Nationwide
Northern Rock

 

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