It's a great rate. But are kids really quids in?

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The Independent Online

Savers have watched headline rates climb steadily as banks and building societies slug it out for their custom. But the Halifax turned more heads than most last week when it announced the launch of a children's account paying 10 per cent.

Savers have watched headline rates climb steadily as banks and building societies slug it out for their custom. But the Halifax turned more heads than most last week when it announced the launch of a children's account paying 10 per cent.

This is more than double the 4.75 per cent Bank of England base rate and 2 per cent higher than HSBC's much-vaunted regular saver account (paying 8 per cent) for adults.

The new account, available from tomorrow, is a regular saver paying an annual 10 per cent gross on monthly deposits between £10 and a maximum of £100 - provided no withdrawals are made. No additional deposits can be made during the year.

Interest is calculated on a daily basis rather than on the overall sum invested during the year, so note that the maximum £1,200 invested for your child will generate around £65.

But the interest is paid free of tax, as savings will not exceed the personal income tax allowance of £4,895 a year (the same for children as for adults).

Thanks to an agreement between Halifax and the Inland Revenue, parents can go into a branch of the bank and register for tax-free returns. This saves them having to fill out an IR85 form, as they would usually do.

But fail to make regular contributions throughout the year, or pull the money out, and interest paid drops to that of Halifax's Save4It account - currently 5.05 per cent. At the end of a year, money saved plus interest earned is swept into this same Save4It account for you - or another nominated Halifax account (if you have one) on behalf of your child. Parents can then continue to pay back into the children's regular saver - although they must check the rate at that time as the 10 per cent rate is only fixed for a year.

Stuart Glendinning from the price comparison service Moneysupermarket.com goes as far as to recommend that anybody with a child should open the account.

Others are less effusive. While the account cannot be beaten on rate, savers need to watch out for the restrictions, warns Rachel Thrussell from financial analyst Moneyfacts.

A parent who has £1,200 to invest for a full 12 months could earn almost as much - £64.20 - in the Ladybird account from Saffron Walden building society, which pays 5.35 per cent. "And you could make additional contributions to this account," Ms Thrussell adds.

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