Little 'uns accounts that pay big rates

While children are more likely to be interested in the free piggy banks, soft toys and colouring books on offer, parents opening a savings account for their offspring would do well to look at the interest rates being paid.

Halifax hit the headlines recently with the launch of its Children's Regular Savings account, paying a whopping 10 per cent interest for a year from opening - but not all institutions are so generous.

'High street lenders are particularly aggressive when it comes to promoting their kids' accounts as they hope to retain the business as the child turns into an adult,' says Richard Brown of data provider Moneynet. 'But with a difference of several per cent between the best- and worst-paying accounts, parents should really do their homework.'

Brown says Halifax has 'really come up with the goods' with the new account but says that it is worth remembering that a child's account can be a very long-term investment, so it should be reviewed after the first year to ensure the rate is still competitive.

The Halifax deal is available to new and existing customers who can hold it on behalf of a child of 16 and under; it requires a regular investment of as little as £10 to as much as £100 a month via standing order.

There is of course a catch: no payments can be missed, and no cash can be withdrawn in the year that the 10 per cent is on offer. Interest is paid at the end of the year, so if a payment is missed, the money will be transferred back to the parent's account and the interest earned to that point will be paid at 5.05 per cent gross, the rate payable on the bank's other children's savings account, Save4it. Assuming no payments have been missed, at the end of each year the capital and interest are swept into either a Halifax Save4it account, or an existing Halifax savings account held by the adult on the child's behalf.

For those who may not want to review their child's account after a year, Susan Hannums, savings expert at Chase de Vere Financial Solutions, suggests Scarborough building society's three-year Children's Savings Bond, which pays 5.75 per cent gross. The rate is guaranteed to be 1 per cent above the base rate for the three years, although parents are restricted to one penalty-free withdrawal a year during that time. Like the Halifax, Scarborough requires regular monthly payments, this time of at least £5 a month. If more than one payment is missed in a year the interest will revert to that paid on the society's First Post account - a measly 1 per cent.

Hannums says those after simplicity should consider the Ready Steady Save account from Chelsea building society, which pays 5.1 per cent. It is easy-access, so it does not require a standing order or direct debit, and accepts payments from as little as £1. For consistently good rates, she says, her favourite institution is Nationwide, which is paying 4.95 per cent on its Smart children's account. 'It is not as high a rate as some others, but Nationwide's children's account has been in the top 10 for years, which is why we always recommend it for someone who is looking long term,' she says.

Finally, don't forget to pick up form R85 from your bank or building society. Fill it in and the interest earned on savings is tax free.

So many children ... she opened them all an account

Ann and Christopher Moffat are experts at looking after children. The couple have five: Jordan, Jamie, Ben, Ellie and Sophie, ranging in age from two to 11. And Ann is a nursery nurse, with 180 youngsters in her charge.

In April the Moffats opened five children's savings accounts with the Skipton building society on the same day. 'The children get a lot of birthday money between them that they end up spending on rubbish, and we are hoping they will now put some of it in savings instead,' says Ann.

The account, known as Leap, pays 4.65 per cent gross and comes with a welcome pack that includes colouring pencils, money box, notepad, bag and stickers featuring Marvin the Monkey, plus a newsletter twice a year. It can be opened with £25 but has a minimum operating balance of £1.

'The older ones got quite excited about the idea of saving, although all the children were more interested in the free goodies - trying to carry five lots of toys home on the same day was a nightmare!' she says.

The Moffats are already crossing their fingers that Jordan, their eldest child, will save some money to fund any future university education.