Nationwide recently announced the launch of a new savings account aimed at 11 to 17-year-olds.
Available to those who already hold a FlexOne current account, it offers competitive interest, instant access, and the chance to save up to £5,000.
A teenage bank account is a great way to teach your child or grandchild invaluable money lessons. It’s something that is often missing from education but it is a crucial lesson to take into adult life.
Keep reading for a closer look at the teenage accounts available, and some alternatives you might use to provide a nest egg for your kids and improve their knowledge of financial issues.
Children’s bank accounts can be opened at any age but will have specific rules and requirements
It’s never too early to start saving for a child or to make them acquainted with financial issues.
The recently launched Nationwide account can be opened up in a branch or online, reflective of youngsters’ level of tech know-how. Money can be accessed immediately but the account will switch to an adult instant access savings account (with a lower interest rate) from age 23.
As with all financial decisions, shopping around will be key. You’ll need to consider who can pay in, and withdraw funds, and when. And think about the amount of control you want your child to have.
Consider tax-efficient alternatives like a Junior ISA
Junior ISAs (JISA) are a particularly tax-efficient way to save for a child. You can pay in on their behalf, but getting a child or grandchild involved can help to get to grips with difficult concepts like investments and compound growth.
There are two main types of JISA and they need to be opened by an adult. You’ll need to take the lead but that doesn’t mean you can’t get your child or grandchild one involved in the decision.
Cash Junior ISA
A Cash JISA works similarly to a high street bank account, like Nationwide’s new 11 to 17 account.
You’ll need to open the JISA on your child’s behalf, but then anyone can contribute to it, up to the JISA subscription limit of £9,000. Any interest gained is tax-free but you’ll need to search for the most competitive rates.
During periods of high inflation, the rates available might mean that your child’s money is effectively losing value in real terms.
When your child turns 16, management of the JISA is handed to them but they can’t withdraw funds until 18. You’ll have to be sure you are happy to cede control.
Stocks and Shares JISA
A Stocks and Shares JISA provides the opportunity to start introducing your child to wider financial issues like stock market investment. The money that is contributed to a Stocks and Share JISA is invested in the stock market with the additional chance for growth that provides (alongside the added risk).
As with a Cash JISA, Stocks and Shares JISAs are incredibly tax-efficient, with any gains made free of Income Tax and Capital Gains Tax.
The same £9,000 JISA Allowance applies and control will again pass to your child when they reach age 16. At age 18, the JISA will transform into an adult ISA with an increased limit (£20,000 for the 2024/25 tax year).
A Stocks and Shares JISA can open conversations about risk and reward and focusing on longer-term goals.
Use saving and investing as a basis for providing these 3 important lessons
1. Money must be earned and saved
It can be hard for children to grasp the value of money but simple financial lessons can help. Completing chores to earn money and saving that money towards the things they want to buy is a crucial step in money management.
Balancing saving and spending is a balancing act, and it’s not always easy, but a high street bank account can be a great first step to seeing this process in action.
2. The concept of interest (and compound growth)
Earning interest is a key part of the saving process but for a young child, it might have to be seen to be believed.
You might do this when your child is younger, by providing a pocket money bonus for every £10 they save, say. When they open a bank account of their own they’ll be able to see in black and white the effect interest can have.
As they get older, you can introduce the concept of interest on interest, or compound growth.
3. The importance of budgeting
While saving for a new toy might focus your child’s mind, there will always be temptation. This means you’ll need to teach the concept of budgeting.
When they are young, you might opt for a two-piggy-bank approach, where one is for short-term saving (like weekend treats, for example) and the other “longer-term” saving, toward a new computer game, say.
Leave it up to your child to decide how much goes in each piggy bank and watch them come to terms with the decisions they make.
Get in touch
HA&W can help you to save for your child and grandchild, allowing you to teach your kids important financial lessons from a young age. Contact us now to find out how our Chartered financial planners could help you.
Please note
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
