Readers' Lives: Can children count on a good deal?

Savings accounts for children ... direct debits. Your financial queries answered
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The Independent Online
I have a seven-month-old son and I would like to open an account for him to put in birthday and Christmas cheques as well as small change from his piggy bank. Where's the best place? Does he have to pay tax? Would he be charged for depositing large amounts of small change?

JM, London

Most savings accounts are open to people of any age, including children under 18. In addition, there are many accounts available only to children and exclusively for local children in the case of smaller societies. Banks and societies are keen to lure customers from a very young age, with the aim of catching them young and keeping them for life.

There may be "extras" with children's accounts - colourful money boxes, magazines, stickers and so on - but it usually makes little sense to choose an account on this basis. (Be careful: if consulted, children are usually drawn to accounts with a bit of razzle-dazzle.)

What really matters is the interest rate and, to a lesser extent, ease of use. A listing of special children's accounts is in MoneyFacts, a monthly publication which readers can get free by phoning 01692 500677. The best rates on children's accounts on balances of just pounds 1 include 7.2 per cent from Nationwide's Smart-2-Save and 7 per cent on Britannia's FirstSaver. Compare the rates and features on these accounts with other open-to-all best-buy accounts.

Children don't normally pay tax on interest because their total income is within the tax-free personal allowance (pounds 4,045) available to everybody. Non-taxpayers can have interest paid without deduction of tax by completing form R85, available from banks and building societies. Note that if a child has an income of pounds 100 or more generated by gifts from a parent, the whole lot counts as the parent's income for tax purposes.

You probably won't be charged for depositing large amounts of small change and other regular deposits, but do check the exact position before opening an account.

I've received an offer from New Statesman magazine, "exclusive to Amnesty International members", to subscribe for three months at the introductory rate of pounds 9.99. I reckon this makes each issue about 77p. But this is a "direct debit offer only". There is no clear indication as to how often I will have to pay by direct debit or the amounts. Do I have anything to worry about? SA, London

There is no doubt that direct debits can be used, whether intentionally or not, as a way of inertia selling.

People sign a direct debit and never quite get round to cancelling it. They end up buying something they may not really want at all, or may not normally consider at the price at which it is being offered.

The New Statesman offer does not, however, appear to break the strict rules of direct debits. You are asked to give it permission to take money direct from your bank account. "The amounts are variable and may be debited on various dates." Scary? It may sound as though you are writing a blank cheque. In fact, there is one crucial safeguard: you have to be given at least 14 days' notice of the amounts to be debited. This gives you time to contact your bank and cancel a direct debit if you change your mind - provided, of course, that you are not on holiday at the wrong time or you don't ignore it as another piece of junk mail.

But while you do have this safeguard, the New Statesman offer (unusually) omits to tell you of it. Also unlike the New Statesman debit, many give you an idea of whether the payment is likely to be monthly, quarterly or annually. And with something like a magazine subscription where the cost is known (unlike, say, your gas bill), you might well expect to be told the existing direct debit subscription rate, and not merely that after three months the "subscription will revert to the current annual rate, as published in the magazine".

Does the New Statesman give any clues as to what you might pay? "Keep track of New Labour for 83p a week" says the headline. The 83p is contrasted with the pounds 1.90 charged in the shops. So you might think that 83p a week is the rate you'll eventually pay. Not so. This 83p refers to the special offer rate of pounds 9.99. Apparently, it's an error. It's pounds 9.99 divided by 12, when pounds 9.99 should have been divided by 13 to get 77p.

Another headline says "Half price but no half measures". Though it is not clear, this refers specially to the introductory offer and even then is not quite accurate. Later on, you are told that the magazine is yours for "below half price". In other words, the final rate will be more than double the introductory rate. You spotted the very small print at the foot of the second page of the offer. "This is a direct debit offer only. If you wish to pay by cheque the subscription rate is pounds 85 per annum. There's your answer as to what you will be charged. The current direct debit annual subscription rate, after the three-month special offer period, is also pounds 85. Furthermore, that money is collected in one swoop once a year. You have been warned.

q Write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number, or fax 0171-293 2096 or e-mail s.lodge@ independent.co.uk. Do not enclose SAEs or any documents you wish returned. We cannot give personal replies or guarantee to answer every letter. We accept no legal responsibility for advice given.

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