How do children's savings accounts work?

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Opening a children’s savings account is an excellent way to teach your child or grandchild about financial responsibility, preparing them for a future of financial literacy. Whether you opt for a long-term option like a deposit account or short-term like a regular savings account, guiding children on saving and managing money is a valuable life lesson.

In this comprehensive guide, we will explore how children’s bank accounts work, why it’s important to open one, and its tax implications. You’ll find an overview of types of children’s savings accounts to help you make an informed decision about the most suitable account for them.

Key takeaways
  • Financial literacy: Having their own children’s savings accounts will teach children how to manage their finances and learn important financial lessons early on

  • High interest rates: As compared to adult savings accounts, many children’s savings account pay a higher rate of interest

  • Tax: Interest earned on savings in a children’s savings account is taxed, but most children don’t earn enough to cross the tax threshold

What are children’s savings accounts?

Children’s savings accounts are an easy and secure way to save money for your child or allow them to access themselves once they reach an appropriate age. These accounts are similar to adult savings accounts and offer options tailored to children’s needs.

Banks will sometimes offer different types of children’s bank accounts, including regular savings accounts and deposit accounts, depending on your personal goals for your children’s finances. By exploring the different types of child savings accounts, you can select the most suitable option to nurture your child’s financial growth for their future.

How does a child savings account work?

Children’s savings accounts in Ireland work similarly to adult accounts, although specific terms and features may vary across different banks and financial institutions. It’s recommended to review the details offered by the account provider before signing up for a new account.

Typically, parents or guardians have control over their child’s savings account until the child reaches a certain age, usually 16, but it depends on the account type.

Key features of children’s savings accounts in Ireland include:

  1. High interest rates: Sometimes the best children’s savings accounts in Ireland will offer higher interest rates compared to adult accounts. However, there may be limitations on withdrawals for both you and your child.
  2. Affordable deposit amount: You can often open a child savings account in Ireland with a minimal initial deposit, even as low as €1, ensuring accessibility for children of all ages.
  3. Financial independence: Children aged seven and above usually gain increasing control over their own savings account, fostering financial responsibility from an early age in the Irish banking system.

What are the best Irish savings accounts for a child?

Different types of children’s savings accounts cater to specific savings goals. For a long-term goal, like saving for a first car, a suitable option would be a fixed term deposit. This type of account typically offers competitive interest rates and allows your savings to grow over extended periods of time. Since access to funds may be limited during the fixed term, it is well-suited for goals that don’t require immediate withdrawals.

On the other hand, if the savings goal is more short-term, such as saving for an upcoming holiday, an account that provides easy access to funds once a specific savings threshold is reached might be a better choice.

Here are some of the most common types of children’s savings accounts to consider in Ireland:

Regular savings accounts for children

Regular savings accounts, or regular monthly savers, require you to save small amounts each month over a fixed term with high interest rates. Most regular savings accounts provide a fixed rate of interest throughout the account term, though some may offer variable rates. You may incur penalties in case you want to withdraw money before maturity. Some children’s accounts require monthly contributions with direct debits from another bank account over a fixed period. Missing a monthly payment might lead to a reduction in your interest rate, or other penalties.

Post office children’s savings accounts

A children’s post office account is an easy access bank account where the minimum deposit can be as low as €0.01. It is a way to bank safely and securely with a state-owned postal service so that your child can start their financial education early. Ireland has post office children’s savings accounts that can be operated by kids seven years or older, without parental or guardian consent.

Children’s demand deposit accounts

Demand deposit accounts, also known as instant savers, provide the most flexibility, allowing you to add and withdraw money at your convenience. While they usually offer lower interest rates than regular savers and fixed rate bonds, they provide instant access to funds, making them ideal for short-term savings. Demand deposit accounts are also useful for teaching children about managing their savings regularly.

Why should I open a savings account for my child?

Opening savings accounts for children, such as a children’s post office account, offers many benefits, especially when it comes to supporting their financial future. Having their own savings account means that by the time the child is 18, they already have a strong financial foundation. This may allow them to afford significant milestones, such as a car, university tuition fees, or a down payment on a house.

You might want to open a children’s savings account for short- or medium-term goals, such as relatively large purchases like a laptop, tablet, or musical instrument.

When deciding on the type of savings account to open, consider why you’re doing so.

Here are a few additional points to keep in mind:

  • Generally, children must be at least seven years old to open a savings account in their own name. If your child is under seven, a parent, guardian, or grandparent can open and manage the account on their behalf. Even if your child is over seven, you can still choose to handle their account.
  • It’s important to check the duration of your child’s savings account, as some accounts may have an end date before the child reaches 16 or 18 years old. For example, the account may expire when the child turns 11 or 13.

What access will my child have to their savings account?

This depends on the type of savings account, the age of the child, and other factors. Some savings accounts will offer a passbook to operate the account, or a child’s cash card or debit card, when the child reaches a certain age.

What do I need to open a children’s savings account?

To open a child savings account in Ireland, you’ll need the following documents:

  • The child’s birth certificate or passport, for identification
  • The parent or guardian’s ID, such as a passport or driving licence, along with a bank statement or utility bill to confirm the family’s address
  • Proof of the child’s Personal Public Service (PPS) number, such as a letter from the social welfare department

In-person branch visits were once more common, but now many providers allow online account opening. Depending on the provider, you may need to submit your child’s photo, a photo ID, and proof of address.

Can I open one savings account for two or more children?

Banks don’t usually support a single account for multiple children. Similar to adult savings accounts, child savings accounts are unique to each child. If you have more than one child, you will probably need to open separate savings accounts for each of them.

When can a child open a savings account?

Typically, children need to be at least seven years old to open their own savings account. If they are younger than seven, a parent, guardian, or grandparent can open the account on their behalf and manage it until the child reaches the age of 16. However, the age requirement may vary depending on the account type and the provider, so it’s always good to verify the details.

At what age can a child gain control of their savings account?

The age at which a child can take control of their savings account depends on the account type and the account provider.

Can grandparents open savings accounts for grandchildren?

Yes, grandparents can open savings accounts for their grandchildren. You’ll need to submit the necessary documents, including your grandchild’s birth certificate. If you’re opening the account with a bank or building society where you don’t have an existing account, you may also be required to give your own ID and proof of address.

As a grandparent, you can also contribute to your grandchild’s savings. The annual gifting limit is €3,000 per child, per year, which is exempt from inheritance tax. It’s important to note that gifts made more than seven years before your death are not subject to tax. If you don’t utilise the full €3,000 allowance, you can carry over the difference for one tax year.

Can I put money in my child’s bank account?

Many children’s bank accounts will allow parents to deposit funds into the account. However, when it comes to opening a children’s savings account, even a Post Office children’s savings account, there are various factors to consider. The amount you contribute depends on the type of children’s savings account you choose. Some accounts may have maximum contribution limits, either in total or over a specific period.

If you are considering a Post Office children’s savings account or any other children’s savings account, it’s advisable to review the account details, including interest rates and terms, before opening one. This will ensure you have a clear understanding of any potential restrictions or guidelines that may apply to the account.

Can a parent withdraw money from their child’s savings account?

It’s possible that parents don’t have the authority to withdraw money from their child’s savings account, even accounts that were opened by that parent. When a parent opens a children’s savings account, it’s important to note that the account is in the child’s name. As the legal owner of the account, the child has sole authority over the funds deposited.

Are children taxed on savings in Ireland?

Yes, children may be subject to tax on savings in Ireland. However, most children don’t typically earn enough interest to exceed the tax threshold. Earned interest is subject to DIRT or Deposit Interest Retention Tax. Deposit Interest is charged at 33% of total interest and the threshold for annual interest payments is €300.

Tax on money gifted by parents, friends, and family

As of 9th October 2019, Irish tax regulations state that children can enjoy a tax-free threshold for gifts and inheritances from their parents, up to €335,000 throughout their lifetime. In cases where the total value of money received by a child exceeds €335,000, only the excess amount will be subject to tax. In addition to the tax-threshold, there is an annual small gift exemption on €3,000 given to a child by any individual, including a parent or grandparent. The same applies to a payment of €6,000 by both parents to their child in one year.

Do my children’s savings affect my benefits?

If you have access to your children’s savings accounts, you have to be aware that the amount they’ve saved can impact your benefits, including those that are means-tested. It’s important to declare these savings accounts when applying for or receiving benefits. Means-tested benefits include Jobseekers Allowance and benefits for Supplementary Welfare Allowance.

By accurately reporting and declaring the savings accounts, you can ensure that your entitlement to these benefits is determined correctly based on your overall financial situation.

How can I teach my child about saving money?

Children’s bank accounts teach your child that putting money in the bank helps it grow, so they have more money to spend in the future. It helps them understand why money is important, how it works, and how they can secure their future from an early age.

Here are seven tips to help you teach your children how, and why, to save money:

  1. Start early: Introduce the concept of saving money to your child at a young age. Encourage them to set aside a portion of their allowance or money they receive as gifts.
  2. Set savings goals: Help your child establish specific savings goals. It could be for a toy, a game, or something else they want. This gives them a purpose and the motivation to save.
  3. Show the power of compound interest: Illustrate how saving money in a bank account can earn interest over time, leading to more savings. Use relatable examples to teach them about this concept.
  4. Teach the difference between needs and wants: Help your child distinguish between essential needs and discretionary wants. Teach them to prioritise saving for important things before spending on non-essential items.
  5. Discuss real-life examples: Share stories or examples of how saving money has benefited others. These could be stories of successful entrepreneurs, savers who achieved their goals, or people who faced financial challenges due to poor saving habits.
  6. Encourage entrepreneurship: Encourage your child to explore entrepreneurial activities, such as selling homemade crafts or providing services to neighbours. This teaches them the value of hard work, earning money, and saving from their earnings.
  7. Make it fun: Incorporate interactive activities and games related to saving money. This could include challenges, rewards, or creating a visual representation of their savings progress.

Remember to adapt these tips to your child’s age and understanding level. Building a strong foundation of financial literacy and saving habits early on will benefit them all their lives.