The best ways to save and invest for kids in the UK

Saving for our kids ranks high on most parents' priority lists. Around three in four parents put some money aside hoping to soften the financial reality their children will face as adults.

It’s not hard to see why: the average student now graduates with roughly £53,000 of debt, and the typical first-time buyer deposit has climbed to an eye-watering £68,154.

And if those figures have got you in a panic, don't worry: we'll walk through all the ways to save and invest for kids in the UK, how to decide whether cash or investing makes sense, and why even modest amounts can go much further than you might expect.

Savings accounts for kids

Most UK parents save for their children in exactly the same way they save for themselves: using a cash savings account.

That's partly because it's familiar, partly because it's flexible, and probably partly because very few people sit down and think about tax rules and investment funds when they're first putting £20 or £50 a month aside for a toddler who's currently more interested in chewing the furniture.

How kids' savings accounts work

Accounts for kids work very similarly to those for adults. Here are the key rules:

• You can open one with just £1 for any child up to the age of 16
• Your name remains on the account and you're in charge of the funds
• Your child can manage the account when they’re old enough, and when they reach 18 the account is transferred to an adult equivalent.

Types of savings accounts for kids

When you go to open an account, you'll have a few different options:

Instant-access accounts are the most flexible. You can add and withdraw money whenever you like, much like a standard savings account. The trade-off is that interest rates are often underwhelming, and the best headline rates tend to apply only up to a relatively low balance before dropping away.

Regular saver accounts reward commitment. You agree to pay in a fixed amount each month, and in return you'll usually get a higher interest rate, often for a set period. Access is more restricted – in many cases, taking money out early means closing the account altogether.

Fixed-term savings, sometimes called bonds, lock your money away for a defined term – perhaps one, three or five years – in exchange for a rate that's guaranteed for the duration. The downside is that you're stuck with that rate even if interest rates rise and better deals appear elsewhere.

When does using a savings account for kids make sense?

The big selling point of a children's savings account compared with the other options we'll explore is flexibility. Nothing is locked away, and if circumstances change, what you do with the money can change, too.  

That flexibility also makes children's savings accounts a surprisingly good teaching tool. 

Once they're old enough to manage small amounts of spending money, they can start to see how saving actually works: money goes in, interest appears (eventually), and future them benefits from present-day restraint. 

You might also find that some children's savings accounts pay better rates than equivalent cash ISAs, particularly for smaller balances or shorter time horizons.

That said, easier access can easily turn "this is for your future" into "we'll just borrow it for now". In fact, 32% of parents confess to having dipped into their child's savings in an emergency.

And then there's tax. Any interest earned in a savings account – even one designed for children – is taxable. And in certain cases, it's not the child who ends up paying the bill.

How kids' savings are taxed

Children get exactly the same personal allowance and the same savings allowances. That includes:

• The personal allowance: £12,570 a year they can earn before paying any income tax
• The starting rate for savings: up to £5,000 of savings interest taxed at 0% 
• The personal savings allowance: up to £1,000 of savings interest tax-free for basic-rate taxpayers

For the 2025/26 tax year, that means a child could earn up to £18,570 a year in savings interest before paying any tax, assuming they don't also have a lucrative side hustle Twitch streaming or re-selling trainers. 

However, HMRC is especially cautious of parents using their children's allowances as an extension of their own. Which brings us to the rule that causes a lot of confusion...

The £100 rule

This is designed to stop parents shifting large sums of their own cash into their children's names purely to reduce their tax bill.

If a child earns more than £100 a year in interest from money given by a parent or step-parent, then the parent – not the child – is taxed on all of that interest. Not just the amount over £100. The entire lot.

So, if you put money into your child's savings account and it generates £120 of interest in a tax year, that £120 is treated as your income for tax purposes and taxed at your marginal rate.

The rule only applies to parents and step-parents – money from grandparents or other relatives doesn't count. And the £100 limit applies per parent, per child.

In practice though, most people still aren't affected. For context, you'd need £20,000 savings at a 5% rate to generate £100 in interest.

But when it does apply, it can come as a nasty surprise – which is exactly why it pays to look at more tax-efficient options – like a junior ISA.

Junior ISAs

There are two types of junior ISA: a junior cash ISA and a junior stocks & shares ISA.

A cash ISA works in much the same way as a savings account, whereas a stocks & shares ISA lets you invest your child's money in just about anything – ETFs, mutual funds, bonds, or even gold or silver.

How junior ISAs work

While the two types of JISA work differently under the bonnet, the rules are the same for both:

• JISAs can be opened by a parent or legal guardian for a child under 16
• Anyone can contribute, including grandparents and other relatives
• Money is locked away until the child turns 18, although from age 16 they gain legal control and can start managing the account themselves
• You can save or invest up to £9,000 a year
• Just like other types of ISA, all growth is completely tax-free — no tax on interest, dividends, or capital gains.

The tax advantages are the reason junior ISAs exist. 

But they come with a cost: flexibility. Once money goes into a JISA, it's out of your hands. You can't access it if plans change, and when your child turns 18, you have no say in how it's used. Even if you had visions of a house deposit and they have visions involving festivals, fast cars, or an extremely optimistic business idea.

In practice, many parents end up using a combination. A regular savings account for everyday money and short-term goals, and a junior ISA for more serious, long-term saving.

Should you choose a junior cash ISA or a junior stocks & shares ISA?

This choice really comes down to one question: are you saving, or are you investing?

You're allowed to open one of each type for the same child, so you don't have to pick a single lane. As long as you stay within the £9,000 annual allowance, you can split contributions between cash and investments if that suits you better.

In practice, though, most parents don't. 83% save for their children exclusively in cash – mainly because of a lack of confidence when it comes to making the right investment choice.

If you're even vaguely interested in investing for your kids, it's worth slowing down and learning the basics first. 

We’d recommend starting with our free index funds for beginners course hosted by Damien from Damien Talks Money – it's around 90 minutes of self-paced learning that covers the fundamentals of money and investing, plus choosing a fund that’s right for you.

Index funds are considered to be one of the least risky and most accessible forms of investing – making them a great fit for kids' accounts.

Another reason parents gravitate towards cash ISAs is the perception of safety. The value in the account doesn't go down, so you always know exactly how much is there. 

The problem is that cash has a more subtle enemy: inflation. While your balance might be growing, the buying power of that money can still be shrinking over time.

We'll break it down with an example.

Let's say your child turns 18 today. You've put £100 into a junior cash ISA every month from birth, without fail. We'll assume an average interest rate of 2% to account for long stretches of very low rates.

After 18 years, they’d have around £26,000.

That sounds decent, until you adjust for inflation. To have the same spending power as those contributions had when you made them, that pot would need to have grown to roughly £36,800.

Now let's run the same scenario using a junior stocks & shares ISA.

Instead of holding cash, you invested the money in a global index fund – a fund that spreads your money across thousands of companies around the world, rather than relying on any single country or sector. 

Over the past 20 years, global equity markets have returned around 9.5% per year on average, so we'll use that as a long-term benchmark.

The same £100 a year would've grown to roughly £54,748. Enough to keep up with inflation – and then some.

Here's what that difference in growth would've looked like over time:

Of course, past performance is not a guarantee of future results, and no one knows what markets will do over the next 18 years. But these examples are useful because they show the hidden cost of avoiding volatility altogether.

But there's also a softer benefit to using a junior stocks & shares ISA: it creates an opportunity to teach your children about investing early. How markets work, why long-term thinking matters, and why the real magic ingredient in building wealth is time itself (more on this more later on.)

P.S., Almost all children born in the UK between 1st September 2022 and 2nd January 2011 were given an investment voucher worth between £50 and £700, which parents were asked to place inside an account known as a Child Trust Fund. 758,000 accounts remain unclaimed, worth an average of £2,240. You can use HMRC's Child Trust Fund tool to see if you have one.

How to choose a junior ISA

If you're looking for a junior cash ISA, you'll obviously want to opt for one that pays a decent interest rate. Sometimes, the interest rate will vary depending on how much you have saved, or only apply to balances over a certain amount, so make sure you read the fine print.

If you'd like to open a junior stocks & shares ISA, you can view all our top picks here. We've broken down how much each broker will cost you in fees, and you can also see a star rating out of ten for each awarded by our expert review team.

Hargreaves Lansdown is currently our top pick, due to their low fees and excellent customer service. Check out our step-by-step tutorial for opening an account.

Just be aware that when your child turns 18, their account will turn into a regular adult ISA – and Hargreaves Lansdown's fees are some of the steepest around. At that point, it probably pays to switch.

Bare trusts

Junior ISAs are great, but what about if you're rolling in dough and a £9,000 limit simply isn't enough? In that case, you might consider using a bare trust.

A trust is simply a legal framework for holding and managing assets for someone else. One person (the trustee) is responsible for looking after the assets, while another (the beneficiary) is the person who ultimately benefits from them.

In this case, the beneficiary is your child.

How bare trusts work

There are many different types of trust, most of them complex, highly structured, and firmly in "get professional advice" territory. A bare trust, however, is the simplest version available. As the name suggests, it strips things back to the basics.

Assets placed into a bare trust are held in the trustee's name, but they belong outright to the child. There are no conditions, no discretionary decisions to be made later, and no ability to change who benefits. 

When the child reaches 18 (16 in Scotland), they become legally entitled to the assets have full control.

In that sense, bare trusts behave a lot like junior ISAs. The money is effectively locked away until adulthood, and once access kicks in, it kicks in completely.

Where bare trusts differ is in what they can hold, how much you can put in, and how they’re taxed.

A bare trust can hold almost any asset: cash, shares, bonds, investment funds, property, or even certain insurance policies. Unlike a junior ISA, there’s no annual contribution limit. You can put in £1,000, £50,000, or £500,000 if you really want to. That flexibility is the main appeal, but the trade-off is some added complexity.

How tax works in a bare trust

For tax purposes, assets held in a bare trust are treated as belonging to the child, not the trustee.

That means income and gains are assessed against the child's own allowances. They're entitled to the full personal allowance, personal savings allowance, and capital gains tax allowance, just like an adult. Anything above those thresholds is taxable in the child’s name.

However, the £100 rule still applies.

If the assets in the bare trust were funded by a parent or step-parent, and they generate more than £100 a year in income, that income is taxed on the parent instead. The fact that the assets sit inside a trust doesn’t override that rule.

So while bare trusts offer more flexibility than a JISA, they don't automatically solve the tax issue for parents in the way a junior ISA does.

When bare trusts are useful

As we touched on, bare trusts tend to come into play once you're outside the limits of a junior ISA. Alternatively, they're handy if you want to hold assets that simply aren't permitted inside a JISA, like property.

They're also sometimes used where money is coming from grandparents or other relatives, since the £100 rule doesn’t apply to those contributions.

Some parents utilise bare trusts to help pay private school fees, particularly if someone else – like a grandparent – is providing the funding. This is because it allows you to use your child's personal allowances instead of your own. 

That said, there's paperwork, ongoing administration, and tax reporting to think about – and once assets are placed into a bare trust, they cannot be clawed back or redirected.

If all that sounds a bit confusing, check out our beginner's guide to bare trusts. We run through how they work in detail, plus how they stack up against other types of trust.

Next, we'll look at an that involves even more serious long-term thinking: a junior self-invested personal pension. 

Junior SIPPs (JSIPPs)

Junior self-invested personal pensions are exactly what they sound like: a way to save for your child inside a pension wrapper.

Here are the key rules:

• A JSIPP can be opened by a parent or legal guardian at any time before a child is 18
• Anyone can contribute to the account, just like a JISA
• Money can be accessed at the age of 55, rising to 57 from April 2028.

The age at which SIPPs can be accessed is likely to increase further over time, as governments try to keep it broadly aligned with the State Pension age.

How junior SIPPs work

From an investment point of view, junior SIPPs look very similar to junior stocks & shares ISAs. You're typically investing in the same building blocks – funds, ETFs, and other long-term growth assets – and many providers offer almost identical investment line-ups.

You can contribute up to £2,880 a year into a junior SIPP. However, pensions benefit from tax relief. The government automatically adds basic-rate tax relief, effectively topping this up by 20%. That turns a £2,880 contribution into £3,600.

This tax relief is the main reason junior SIPPs exist at all – It's free money. 

When junior SIPPs are useful

A junior SIPP can be a powerful way to set your child up for later life – but only with money you're genuinely happy to lock away beyond childhood, early adulthood, and most of mid-life.

There's no flexibility if circumstances change, and no guarantee that pension rules won't shift again in the decades ahead. Once money goes in, it's committed.

That said, the strength of a junior SIPP is precisely its long timeline. With such a long runway, even relatively small amounts have the chance to compound into almost unbelievable sums.

Let’s look at how that could play out in practice. We'll assume:

• You invest £3,600 once, in the year your child is born, and nothing further
• The money is again invested in a global index fund, growing at an average annual rate of 9.5%
• Your child accesses the pension at age 57

Under those assumptions, that single £3,600 contribution would grow to an astonishing £635,195. A reminder that with investing, when you start often matters more than how much you start with.

How to choose a junior SIPP

Junior SIPPs are a niche product, so the market is relatively small. At the time of writing, only a handful of providers offer them – four, at our last count.

We’ve broken down all the available options here, including what each provider might charge in fees and how their platforms compare. Based on cost, service, and track record, our current top pick is Fidelity, which stands out for its low fees, solid customer support, and long-standing reputation.

Bonus option: Premium Bonds

In our experience, grandparents – and older generations more generally –  bloody love buying Premium Bonds for kids. Possibly because they were hugely popular in the 1950s and 60s, and possibly because "you could win a million!" sounds more fun than "this pays a sensible, slightly underwhelming interest rate".

The basic idea is simple. You buy bonds that act like entries into a monthly prize draw. Those entries roll over every month, and instead of earning interest, you might win cash ranging from £25 all the way up to £1 million.

How Premium Bonds work

The rules themselves are fairly straightforward:

• Adults can buy Premium Bonds for any child under 16
• A parent or guardian manages the account until the child turns 16
• Every £1 bond is entered into a monthly prize draw
• Prizes range from £25 to £1 million
• The odds of winning are 22,000 to one for each £1 bond, per month
• You can hold up to £50,000 per person
• All winnings are tax-free.

Premium Bonds are issued by NS&I, which sets a prize fund rate each year. This represents the total proportion of all bond value that's paid out in prizes across the entire pool.

That rate changes over time depending on interest rates and how much money the government wants to attract – but it's important to understand what it isn't, which is a guaranteed return.

Are Premium Bonds a good way to save for kids?

At first glance, it's tempting to think they work like a savings account but with a fun lottery twist.

If the prize fund rate is 4%, and your child holds £20,000 in Premium Bonds, you might reasonably expect they'll earn around £800 a year.

They won't.

The "average return" baked into that headline rate is heavily skewed by people who win big prizes. If one bondholder wins £100, that £100 counts towards the average – even though thousands of other bondholders win nothing at all. When someone wins £1 million, the distortion is even bigger.

As Damien explored over on Damien Talks Money, most people's returns sit well below the headline prize rate, especially with smaller holdings. The maths is unlikely to work in your favour unless you're very lucky or holding a very large amount.

And that effect is amplified for most children, who aren't parking £50,000 for decades but likely holding a few hundred or a couple of thousand pounds. At those levels, months (or even years) of winning nothing at all are entirely normal.

There's also inflation to contend with. 

If you’re not winning regularly – or you're only picking up the occasional £25 prize – your money is losing buying power over time.

To put that into perspective, if you'd bought £2,000 of Premium Bonds in 2020, you would have needed to win around £563 just to keep pace with inflation.

Bottom line: the real value of saving and investing for kids

No matter which option you pick, giving children a financial head start can make a real difference.

Even the average pot of £18,000 can go a long way towards easing the pressure of early adulthood, whether that's helping with university costs, a first home, or simply giving them options at a point in life when money is usually tight.

But if you ask us, that's not even the most important part.

Right now, only 47% of young people leave school having received a meaningful financial education, with an estimated 5.4 million entering adult life without the skills they need to manage money day to day.

Involving children in the process – showing them how savings are built, how decisions are made, and why some money is left alone for the long term – gives them valuable real-life context to help them make good decisions as adults.

And if you can help them grasp the idea of compound interest early – that small, boring actions repeated over time can quietly snowball into something powerful – you'll have given them a head start that lasts far longer than any lump sum ever could.

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