How do children's savings accounts work?

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 and their 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.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

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

Banks and credit unions 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.

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.

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, and rates may drop sharply once a certain balance has been reached.

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.
4. Flexible saving options: Typically, you can either deposit lump sums into a child bank account or save monthly by regular direct debits. Some providers may require you to have a current account with them for this option.
5. Minimal fees: Depending on the particular provider and account type, child savings accounts in Ireland usually don’t charge monthly maintenance or transaction fees.

There’s no single “best” savings account for kids. Different types of children’s savings accounts cater to specific savings goals. For a long-term goal, like saving for a first car, one option would be a fixed term deposit. This type of account typically offers competitive interest rates and allows your savings to grow over a set period 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. Fixed terms are most commonly found on adult accounts, so the parent would have to open one in their name.

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, 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 child savings 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.

While not technically a kids’ bank account, State Savings Ireland offers an account designed to save your Child Benefit for a year and earn tax-free interest after five years. Parents can make monthly contributions of between €25 and €1,000 per month. Each year, you can renew the plan, after which the savings are reinvested for another five years, and you get a fixed rate of return.

Demand deposit accounts, also known as instant savers, provide the most flexibility, allowing you to add and withdraw money at your convenience. These kids’ savings accounts can offer competitive interest rates for small balances, but they often drop to very low levels once the balance goes over a certain limit. Their advantage is that they provide instant access to funds, making them ideal for short-term savings. Once the child reaches adulthood, this account may automatically transition into a standard demand deposit account.

While it won’t let your child earn interest, the current account from An Post offers several extra features that can help children learn about money and saving. With options such as a debit card, an app with savings jars, and parental spending limits, a kids’ bank account can give both child and parent an extra level of control. The account can be opened for children between the ages of seven and 15.

Alongside the typical child savings accounts, parents can also open a managed investment savings plan for their child. The money is invested in funds, such as stocks, bonds, or cash-based options. And because parents can assign the policy to their child, it may have tax benefits under Ireland’s annual gift tax exemption rules. Unlike money in a savings account, however, the value of the investment can go up or down depending on market performance.

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 saver account. However, the age requirement may vary depending on the account type and the provider, so it’s always good to verify the details.

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.

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.

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

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.

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.

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.

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, there are various factors to consider. Some kids' savings accounts may have maximum contribution limits, either in total or over a specific period. Some saver accounts are set up specifically so that you can contribute €3,000 per year, which is the annual gift tax exemption. If you are considering a children’s savings account, you may want 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.

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. In some cases, they may have to show that the funds are being used exclusively for the child’s benefit. When a parent opens a children’s savings account, it’s important to note that the account is usually in the child’s name. As the legal owner of the account, the child has sole authority over the funds deposited.

Yes, children may be subject to tax on savings in Ireland. However, most children don’t typically earn enough interest to owe income tax. Earned interest is subject to Deposit Interest Retention Tax, or DIRT. DIRT tax in Ireland is charged at 33% of total interest. The bank will deduct this when you receive your funds, but, if the child (or parent) qualifies for an exemption, they may be able to claim a refund.

As of October 2024, a child is entitled to a lifetime tax-free threshold of €400,000. In cases where the total value of money received by a child exceeds €400,000, only the excess is charged 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 joint payment of €6,000 by both parents to their child in one year.

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 kids' savings accounts, you can ensure that your entitlement to these benefits is determined correctly based on your overall financial situation.

If you want to grow your own savings to give your children a strong financial future, you can benefit from competitive interest rates on a range of high-yield savings accounts. Whether you prefer the stability of fixed term deposits or the flexibility of demand deposit accounts, we have options to suit your needs.