Martin Lewis Christmas money tips

Christmas is around the corner and many children will be overloaded with presents under the tree – too many to contemplate and often they only last as long as the turkey.

Instead, many savvy parents and grandparents are switching to giving cold hard cash.

At this time of year my Twitter feed and mailbag are jammed with questions on the top children’s savings accounts, so I want to give you a masterclass on the most common questions.

What are the best-paying children’s savings accounts?

The big winner is the branchonly Halifax.co.uk Regular Saver, which pays 6 per cent AER fixed for a year, though you can only pay in between £10 and £100 per month. Of course, this is only a small amount, and you have to drip-feed cash in, but the rate is untouchable.

If you want to save more, then Nationwide.co.uk Smart Limited Access account pays 3 per cent AER variable on savings between £1 and £50,000, though it only allows you to withdrawcash once a year. For easy access, HSBC.co.uk’s My Savings account also pays 3 per cent AER, but you can only save up to £3,000.

Don’t just do it for kids though, do it with them. Get them to monitor the rates in case they drop and if it does, teach them how to check to find a better deal. That’s a real gift.

For a full round up, see mse.me/kidssavings

Who can open these?

Generally, children need to be at least seven years old before they can open and manage accounts on their own. Though for HSBC under-16s will need a parent with them.

For younger children, an adult needs to open the account on the child’s behalf and be a trustee or signatory. Children don’t usually need to be present, but you’ll need ID for them, such as a passport.

Your name will then be on the account with the child’s, but it’ll be your signature that controls it, not theirs.

Grandparents can do this with the Halifax and Nationwide accounts.

What about Junior ISAs and Child Trust Funds – are they worth it?

These are special tax-free savings accounts you can put up to £4,080 in per tax year, locked away until your child’s 18th birthday.

If children are roughly aged five to 13 then theywould’ve got a Child Trust Fund (CTF) and the state may have given up to £500 to start it off. Any younger or older kids are eligible for a Junior ISA (JISA). Both allow you to choose between a cash savings product and an investment product.

If you’ve got a cash JISA or CTF don’t think you’re locked in with a provider. You can transfer it to a new provider – just open it and fill out their transfer forms.

The best-paying JISAs for savings come from CoventryBuildingSociety.co.uk and Nationwide.co.uk, which both pay 3.25 per cent AER variable.

The best-paying CTF is from YBS.co.uk at 3 per cent AER.

Thankfully, since April 6 you’ve been allowed to convert savings CTFs into JISAs, and, as the rates are higher it’s a no brainer – just apply for a JISA then fill in the transfer forms.

Surely kids don’t pay tax anyway?

That’s a myth. Children pay tax just like adults, and like adults, they can currently earn up to £10,600 a year from income, including savings interest, without any tax being taken.

So unless they are a young violin virtuoso or app-building whizz kid, it’s unlikely they’d earn that, so their savings interest is tax free.

Fill out an HMRCR85 formto ensure it’s paid that way – you can get one at Gov.uk.

Yet there’s a specific rule for money given to a child by parents (not grandparents, aunts, uncles) to prevent them stashing their savings in their kid’s name to avoid tax.

It says if they earnmore than £100 interest a year (so that’s about £3,300 saved in the top easy-access account) from money given by each parent the whole amount is counted as the parents income and taxed at their rate.

So is there any point in a Junior ISA?

Formost people no. There are three main exceptions to this.

• You want the cash to be locked away until your child is 18.
• You’re going to give your child enough money that they go over the £100-a-year interest threshold. If so, a Junior Isa means it avoids being taxed at your rate.
• They’ll save enough cash over the years that they’d havemore than the £15,240 adult cash ISA limit when they hit 18 (or whatever it is by then). If they save more than that into kids’ saving accounts and then want to shift it into a tax-free Isa once they start earning, theywould use up their full £15,000 allowance immediately. Yet Junior Isas and CTFs automatically convert into an adult Isa, meaning you still keep your adult Isa allowance on top.