While the interest rate is by no means market leading, parents of children who already have a Monzo account may appreciate the opportunity for their child to earn interest on their savings.
The Under 16s account already offers a savings pot, but it currently earns no interest. In the coming weeks, the 3% interest rate will become available to Monzo's youngest customers.
The option to earn interest is already available to adult customers as well as those with a 16-17 Monzo account, so the feature is simply being rolled out to the children's account as well. The news comes after Monzo launched its children's account earlier this year. Below, we discuss how you can make use of Monzo's savings account if the new interest rate appeals to you.
What children's current accounts does Monzo offer?
To open a children's savings account with Monzo, you'll need to have a children's account with the bank. This can be either the Under 16s account or the 16-17 account. We discuss these options in more detail below.
Monzo launched its Under 16s bank account earlier this year. It's completely free and available to children aged 6-15 who live in the UK. However, to open a Monzo children's account, a parent or guardian must have an account with Monzo already. This allows parents to see how their child is spending their money through instant notifications. Parents can also set spending limits and freeze their child's card in three taps if it is lost. There are savings pots as well, which parents can lock access to if the child is saving for something important. The new interest feature will allow children to earn interest on their savings, too.
Once a child turns 16, they can then switch to Monzo's 16-17 account, designed for 16 and 17-year-olds. This account already offers 3% interest on instant-access savings and allows far more freedom. It also offers many of the same features that Monzo's adult account offers, such as instant spending notifications and the option to split bills with friends. There are some age-based restrictions, including blocks on gambling purchases and no access to overdrafts (though there are no charges if the child overdraws their account by accident).
Is the Monzo children's savings account tax-free?
Many children's savings accounts are essentially tax-free, as the interest earned is below the allowable threshold. Bear in mind, however, that this isn't always the case. Interest exceeding £100 that comes from money deposited by the child's parents, needs to be reported to HMRC. Unless the money generating the interest was gifted by grandparents or friends of the family, it will likely form part of the parents' personal savings allowance (which is usually £1,000). There's more information about this on the government website.
What are the best children's savings accounts on the market right now?
If you're looking to maximise the interest your children could earn from their savings accounts, you should take a look at our overview of the best children's savings accounts on the market right now. Halifax, for example, offers a fixed interest rate account with a 5.50% AER and the interest rate won't change for 12 months from account opening. HSBC has an easy-access children's account with a 4.50% AER interest rate. These savings accounts don't require an existing current account and may be a good option if you're interested in the highest possible interest rate.
If you're looking for tax-free savings options and don't mind locking your child's money away until they turn 18, you may want to take a look at Junior Cash ISAs. These savings accounts allow your child to earn interest on their savings and then take control of their funds when they turn 18. You can save up to £9,000 a year in a Junior ISA and all returns are tax free. This £9,000 figure is separate from your own ISA allowance. The best Junior Cash ISAs currently pay around 4% AER. Take a look at our overview of the best Junior Cash ISAs on the market right now if this is of interest.
And if you want to explore all savings and investment options available to your child, take a look at our article on investing for children.
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