What bank account for a baby?

[shirleycat1]

My ds is 2 1/2 and has a Child Trust Fund account that DP and I put a bit of money in each month.

We just had a baby girl and I haven't a clue what sort of account to open for her. I plan to put in the same amount as we were given for free in ds's CTF myself and then put a bit of money in each month, the same.

As far as I can tell the new Junior ISA isn't really necessary as she won't reach the tax barrier anyway but I don't really know what will be best.

Can anyone give me any advice please or at least point me in the direction of a website that'll tell me all I need to know.

Thanks in advance...

If the interest on the account ever reaches £100 per annum it will be taxed as if it is your money as you have given the money to her (it's to stop people using their kids for tax avoidance). I would therefore suggest you keep an open mind with regards using the tax vehicles that the government are providing for children's savings. However there are issues (control of the money goes to the child at 16 and access at 18), so an ISA in your own name, intended for your child is a good solution if this £100 income barrier is likely to be breached over time (obviously only possible if you and partner (?) don't use your ISA allowance already).

I would suggest you look at the new Junior ISA precisely because it doesn't affect your personal annual ISA allowance. There are stocks and shares Junior ISAs which operate similarly to the CTF accounts. There are cash Junior ISAs. Historically, over any 18 year period in the past, shares have performed better than a straight interest-paying savings account. If you're comfortable with the CTF going to your eldest when they reach 18 and believe that by then you will have educated them in what to use the money for, there is no reason why you should treat your youngest any differently or trust them less.

Having said that, I'd also recommend that you think of other accounts... maybe splitting the contribution so that you spread the risk. Savings accounts where you commit to paying in a regular amount each month can offer reasonable interest rates at the moment. Set up on behalf of a child, tax will not be deducted from the interest at source if you complete a simple form.

Have a look at the children's savings section of the money saving expert website here: Child Savings. It runs through different possibilities depending on your tax rate, how much you want to save for them etc. I'm expecting DD1 in May, and it's been really helpful for me to look through as I'm planning on doing the same as you - a lump sum to start and then a monthly amount.

One point to note is if you use a Junior ISA they can carry forward the tax-free benefit into adulthood instead of a regular savings account which would lead to tax on interest. Our big dilemma is if we're going to be able to trust DD with the cash when she turns 16! Depends how much it will be by then though...

I opened Junior ISA's at the Nationwide for my 2 Ds's