Halifax will pay 10 per cent interest on children's savings

Halifax Bank will on Monday launch a savings account for children, paying 10 per cent annual interest - almost twice the rate on offer from the next best alternative.

Halifax Bank will on Monday launch a savings account for children, paying 10 per cent annual interest - almost twice the rate on offer from the next best alternative.

The launch of the account is the latest stage in an increasingly fierce price war between savings product providers.

Halifax's new deal is a regular savings account - to qualify for the interest rate, between £10 and £100 must be deposited in the account each month.

The full 10 per cent interest is only payable on the cash deposited in the first month of the year - the effective annual rate on savings over the whole year will be about 6.5 per cent.

Even so, experts hailed the account as a breakthrough for savers. The next best standard children's savings account, from Saffron Walden Building Society, pays 5.35 per cent a year.

Stuart Glendinning, director of savings accounts at the price comparison service Moneysupermarket, said: "This account is so good that the choice of whether or not to invest is a no-brainer - if you have kids, you must take advantage."

Rachel Thrussell, head of savings at market analyst Moneyfacts, said: "This is a great deal for anyone looking to save on a regular basis for their children; it's well over 10 years since we've seen a savings interest rate in double figures."

The Halifax deal is the latest salvo in a battle being fought between providers in the regular savings market. Last year, Abbey launched a regular savings account for adults, paying 5 per cent annual interest, but this was quickly trumped by Halifax, which launched a similar deal paying 7 per cent.

The Principality, Scarborough and Leek United building societies have also launched accounts paying 6 per cent or more a year. HSBC has a regular savings deal paying 8 per cent, but this is only available to the bank's current account customers.

Halifax's new deal for children does come with certain restrictions. The rate is only available for a year. At the end of 12 months, cash in the account must be moved to another Halifax product. In addition, the savings are locked in - children who withdraw cash will lose the 10 per cent headline rate.