Opening a savings account for your child is easy and there are lots of banks and building societies out there offering accounts that are specifically aimed at children. These accounts often offer slightly better rates than standard accounts too. In most cases a child can’t have the account in their own name until the age of seven.
Before the child can have an account in their own name it is critical to start your child’s education and teach them that money is earned for by working hard – it doesn’t grow on trees. Set your children tasks to do around the house so they have a working mentality and then reward them with pocket money for the work they have done. There are household Jobs that can be done by children of every age group.
The first step in saving money is to get a money box, a large glass bottle or a piggy bank. Children, upon seeing physical money accumulate will find it a more effective tool than telling them until they are blue in the face that they should save money.
If they want a new toy or an item that is more than their weekly pocket money, they should be made to wait for it. They should save their pocket money until they have enough to buy the toy under their own steam and not with their parents help.
Once a child has grasped this idea of saving for something then it is the perfect moment to open that child a savings account. Both online and high street banks and building societies offer savings accounts and products for kids. Child friendly accounts include lower minimum balances to get the account up and running.
The account should first be opened in the name of the parents as well as the child’s name which indicates guardianship and some sense of control over the account whilst the child is at a young age.
By saving for a child as early as possible will really start to benefit the child by the time they reach adulthood. The main driver behind this is compound interest. Don’t be put off by the technical-sounding name. Compound interest is very simple to understand – and very profitable to receive. The basic concept of compound interest is earning interest on your interest. For example, if you save a lump sum of money in year 1, then at the end of the year you will receive interest on that money.
In year 2 – even if you don’t save any more money – you will receive interest on your original savings plus interest on the interest you earned last year. Over a number of years, your interest payments will gradually get bigger and bigger – whether you are saving more or not. Compound interest is a powerful tool for making the most of your cash savings and it doesn’t require you to do anything at all. Just leave the interest alone and watch it grow.
For more information about child savings and UK junior ISAs to replace the child trust fund savings please visit http://www.best-child-trust-fund.co.uk/