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'Can I keep my savings in my son's account for a higher rate?'

Amelia Murray
This reader wants to take advantage of their child's account, which pays 10 times more than their own - Altrendo

I've noticed that some children's savings accounts pay much more than adult ones.

Halifax has a children's easy-access account that pays 2pc on balances up to £20,000. My Everyday Saver, also with Halifax, pays just 0.2pc.

I have young children and I was wondering if I could open an account for them and save my own money into it, and take advantage of the higher rate. 

Anon, email

As illustrated in the example above, children can earn 10 times more on their savings than their parents. With interest rates currently so low, you might be tempted to stash your cash in these higher-paying accounts.

There isn't much to stop you doing this, according to Tom Adams, from Savings Champion, the savings advice site, but that doesn't necessarily mean that you should.

The money in the accounts technically belongs to the child so you might not be able to access it once they're old enough to make withdrawals. 

You're probably hoping you could save the maximum £20,000 in this account and earn £400 a year instead of £40 if you kept the same sum in your own Everyday Saver.

Well, that's not the case.

To stop people from cashing in on their children's banking facilities, as you hope to do, parents must declare any interest earned above £100. This will be treated as the parent's interest and if it exceeds their personal savings allowance, will be taxed at their marginal rate.

The rule doesn't apply to Junior Isas but if you're thinking about dodging the tax by saving money into your child's Junior Isa, which can pay almost 60pc more than the top five-year cash Isa, think again.

Any contributions made into a Junior Isa belong to the child. They can't access the money until they turn 18 but then they can do what they want with it. Parents who opened the account have no right to the funds within.

Maximise your savings with your own accounts

You can boost the returns of your savings, without using child accounts, by using a combination of other accounts.

Nationwide's high interest FlexDirect current account pays 5pc on balances up to £2,500. You must pay in £1,000 a month. After a year the rate drops to 1pc. See here for more high interest current accounts.

If you are willing to tie up funds then also consider fixed-rate bonds. You can earn a top rate of 1.8pc with Atom Bank, the mobile provider, and Investec, if you can go without access for a year. 

Paragon Bank and Access Bank UK both pay 2.05pc for two years. Access Bank UK also offers a top rate of 2.25pc for three years. We list our favourite fixed rate bonds here.

If it's easy-access you're after, you can do much better than Halifax's paltry 0.2pc rate. The AA's online account pays 1.32pc for 12 months on a minimum balance of £100. After a year it drops to 0.2pc.

For more savings ideas go here.

Why do kids get better rates?

Children's savings accounts tend to pay higher rates for a number of reasons.

The market is smaller, so banks pay less interest in total, and it also looks good from a marketing perspective to be offering decent rates to children.

Many people often stay with their childhood bank when they grow up, said Mr Adams, giving providers the opportunity to cross-sell "more lucrative" services later, such as loans and mortgages.

He said: "If a bank can encourage a long-term relationship with a customer, it will prove much more profitable for them in the long run."

Halifax refused to comment on whether it could stop a parent using their child's Young Saver to earn a better rate of interest on their own funds.

It said the account must be opened for the child using their own identification documents and the purpose of the account was to save for the child.