Teaching children about the value of money is important, and starting them off with a savings account is a good way to teach them about interest. When they begin working or getting regular pocket money then a current account is the next step.
Most banks have specific current accounts in a simplified version for young people who are just beginning their financial lives. They will restrict services like internet banking, debit cards and overdrafts until a certain age, but young people’s bank accounts can also come with special discounts and helpful financial learning tools.
We have also explained how borrowing and saving works for young people, see more here.
Most people need a basic account for money coming in and money going out. These accounts are good for day-to-day banking activities, and can be offered in the bank branches, over the phone, online and by post. You can show your child how to check their bank balance, review transactions, transfer money between accounts (if they already have a savings account), pay bills and set up automati standing orders for regular payments.
We’ve listed a whole range of youth accounts and what you can get with them, but Moneyfacts has got the top three not on the high street that give your children the best return for their money.
West Brom BS Child Fixed Rate Regular Saver – 4.6% AER for a one-year bond. The interest is paid at the end of the year term, with a minimum initial deposit of £10, and a maximum investment of £1,200. No withdrawals are permitted during the year term and you can make a minimum of ten deposits, breaching either of these conditions will result in a 4.10% loss of interest.
Buckinghamshire BS A* account – 3% AER, with interest paid on a yearly basis on 31 December. The bond will mature when the child reaches 16, with a minimum deposit of £100 and maximum investment of £50,000. No withdrawals allowed. The interest rate is variable.
Buckinghamshire BS Junior Saver 100 – 3% AER paid annually, with a minimum deposit of £1,000 and a maximum investment of £10,000. Withdrawals are allowed subject to 100 days’ notice, submitted in writing. You can receive a free rucksack when the account is opened, and interest rates are variable.
More options for young people
The BarclayPlus Account is for 11-15 year olds, and has an AER of 0.25%. It comes with a cash card, but parental permission is needed for a Visa debit card. The 16-19 Young Person’s Account automatically comes with a Visa debit card.
They begin with a MySavings Account from the age of seven, which will earn children 0.5% AER interest on their accounts. A linked current account is then opened automatically when the child turns 11 and comes with a cash withdrawal card, so money can be taken out when it is needed.
Lloyds Under 19 Account is for 11-18 year olds, with an interest rate of 2.5% on balances up to £2,500. It gives children instant access to their money with a Visa debit card that allows for online shopping, and is commission-free on international transactions.
Their Smart Account can be opened from birth and is run with a passbook until the age of ten. If you’re 11 or over you can choose to have a cash card and manage your savings online, as well as the chance to have a Regular Savings account. You can earn 0.75% AER with this account.
AER stands for Annual Equivalent Rate and it’s the amount of interest your money will earn in a savings account if you leave it alone for a year.
Most of the banks offer incentives to go with them such as discounts, food vouchers and rail tickets, but these are only bonuses – it is much more important to know, if you’ve got a credit card or overdraft, that you’re able to pay them off with a reasonable amount of interest rather than getting a couple of free tickets to the cinema. Which one could have a long-term impact on your future?
The great thing about internet banking is that you can have two accounts and link them which allow you to easily transfer money into your savings account and profit from the interest you can gain with savings accounts so long as you don’t spend that money!
You can save money with current accounts, but savings accounts are better because they offer a higher amount of interest to gain, and often because they are separate to your ‘spending’ money account, you are more likely to leave the money there and let it grow on its own by putting a small percentage of your pocket money or wage in each week.
There are many different savings accounts available with each bank, and they often require a minimum deposit to open the account.
If you plan on not touching your savings, but you might need them for something soon, then stick your money in the AA internet extra account paying 1.8% AER. However, minimum opening balance £1,000 but you can get at your savings if you want to.
Borrowing money WITH AN OVERDRAFT
Your account may have an overdraft which will let you take extra money out of your account. Say you have £6 left and you use your card in a store to pay for £10 worth of products. Your account will go into a negative amount (-£4) and you will have an interest free period in which you can pay that money back. If you go over the overdraft amount or past the interest free period then you will incur bank charges.
You also want to have some control over borrowing money. You are offered low-limit credit cards with some young people’s and student accounts but that doesn’t mean you have to take one. Credit cards can be expensive when you don’t pay them off. They are cards with a set limit that you can spend now and pay later. You are sent a monthly bill requiring you to clear or pay off a minimum payment for the account. People start getting into trouble when they cannot pay their card off because they have borrowed too much. This is where you need to be in control of your finances.
N.B. Because you are a young person or student with no assets you are not likely to have a very good credit record, so banks will not give you a card with a high limit. If you have been able to prove that you can pay off regular payments such as monthly phone bills, your credit report may be higher. It’s a good idea to check just in case.
Prepaid credit cards
If you do need a credit card for buying things online and in shops, pre-paid cards are a great alternative. They are like buying phone credit – you put money on the card and once the credit has reached zero, you’re unable to use the card. There are many different types and you can choose them according to what is more important. Would you rather have monthly charges or charges when you top-up the card? It’s a matter of finding out what suits you best.
These are some of the best buys we recommend:
A card with no monthly fee: Splash Plastic Maestro card
Purchase fee: £5
Monthly fee: Annual Account Maintenance Fee – £4.95
Transaction fees: 2.5%
ATM withdrawal: £1.50 plus 2% surcharge on withdrawals over £50
Loading fees: Bank account and wage transfers are free, 30p for every £10 topped up at the post office or PayPoint and 2.5% for credit/debit card transfers.
A card for international travel: FairFX.com Mastercard
Purchase fee: £9.95
Monthly fee: Nil
Transaction fees: Nil
ATM withdrawal: £1 depending on the card currency. There is no charge for withdrawals using the Anywhere Card, which is in Pounds Sterling.
Loading fees: Free or 2.5% if using a credit card.
Replacement card: £6
The FairFX Mastercard is a really good deal. Although there is a purchase fee, the only other fee they charge is a cash withdrawal fee which is very reasonable. Although the cards only come in US dollars, euros or sterling, you can use them anywhere in the world and you will not be charged foreign exchange commission. They also have business exchange rates which means you get more foreign currency for your pound.
It’s better not to get yourself involved with loans at such a young age. Borrowing from the bank of mum and dad is also a no-no. Work hard, save your money and invest it. Read here about the slippery slope of borrowing. We’ll tell you how, but make sure you make a budget to ensure you can pay the money back without having to pay huge amounts of interest or getting yourself into major debt.