YOU would have to be truly nasty to take money from a child’s hand. Yet, sadly, banks have done nothing to protect children’s savings interest rates, and many pay less than grownup ones. These dismal deals don’t just deprive kids of cash, but also of the valuable lesson that your money needs to work for you.

Let’s change that. I want to show you how children can earn up to six per cent interest, grab freebies and allow parents to save tax-free too.

Let’s start with the basics.

Do children pay tax?

THERE’S a common myth that children save tax-free, but it isn’t true.

They are taxed in exactly the same way as adults. Everyone can earn up to £6,475 tax-free from salaries, savings or investments.

However, most children don’t earn close to this. As you’d need thousands in savings before the interest hits this amount, the vast majority can save tax-free. However, if your child’s an actor or entrepreneur earning more, the Inland Revenue will still happily take its share.

The only proviso is any interest earned on money specifically given by a parent or step-parent (not aunt, uncle, grandparent or anyone else) is only tax-free if it generates less than £100 interest per parent. Give the child more and they pay tax on the whole amount at the parents’ tax rate. This is done to stop parents putting all their cash in their children’s names to save tax free.

To ensure interest is paid without tax being deducted, fill out an Inland Revenue R85 form, which most children’s savings accounts will give you. Otherwise, you’ll have pay then reclaim later.

The best-buy children’s savings accounts

THERE is a huge range of account choice depending on circumstances, although under-16s can’t open cash ISAs.

Earn six per cent by saving regularly: Halifax’s and Bank of Scotland’s Children’s Regular Saver pays a six per cent AER (annual equivalent rate) fixed for a year, provided you pay in £10 to £100 every month.

Miss a payment or make a withdrawal and you get a paltry one per cent.

After the year, the money’s transferred into the bog-standard Save4it account, so do ensure you check the rate then is competitive. If not, you can ditch and switch. While you’d have £1,200 in it by the end of the year, don’t expect to earn six per cent interest on £1,200. This is because you drip feed the money in over a year, so actually the average balance is £600 and the interest earned will be roughly six per cent of that.

Top “can’t withdraw” rates

MANY adults want their children to save somewhere where they can’t be tempted to take the cash out. The easiest route is a fixed-rate savings account, as these require you to lock the cash away during that time.

Yet do this, and if rates rise, your cash is locked in too, so you can’t dump it for a better paying provider.

The Yorkshire and Clydesdale Bank’s Child Savings Bonds pay 4.45 per cent fixed for five years. These must be opened for under-16s at one of the bank’s 340 branches.

For a shorter fix, Halifax’s and Bank of Scotland’s fixed-rate web savers have a range of deals paying up to 4.25 per cent. While not children’s accounts, anyone older than 11 is allowed to open one.

Top easy access account

NORTHERN Rock’s Little Rock children’s account pays under-16s three per cent with easy access from £1.

Again, you need open it in a branch.

The best online open account is Halifax and Bank of Scotland’s web saver extra, which pays 2.6 per cent and can be opened online. It’s not a child’s account, but again allows over-11s to save with it.

It’s also worth checking your local building society, as some of these do offer very good rates for children, but restrict them to customers living in the area.

■ For a larger list of best buys, see moneysavingexpert.com/childrenssavings

Once they’ve got an account, why not use it to explain how interest works and that banks often change rates? Give them the responsibility of checking the interest rate regularly, and if it’s no longer competitive, ditch and switch – a crucial life lesson.

Grab armfuls of freebies

BANKS aren’t stupid. They know if you get a child to open an account, many people will then stick with it throughout adult life. Therefore, doling out a free piggy bank or calculator to buy 40 years of profitable custom is cheap.

Focus on interest rates not freebies, unless you’re only putting in a small amount of cash, so that the value of the freebie outweighs anything else. Better still, set up the best-paying children’s account then do your kids a great service by teaching them a bit of banking disloyalty.

There’s nothing stopping them opening a range of accounts using the minimum deposit, usually £1, just to bag a freebie. However, keep track of what you open, so they can still access the cash.

I remember getting a Bradford and Bingley T-shirt this way when I was about eight and loved the concept – you never know, it may’ve been my first act as a Money Saving Expert.

Current freebies include the Nationwide’s money-off vouchers, Cheltenham and Gloucester giving an alarm clock, Bank of Scotland’s calculator and coin box – and lots more.

■ See a detailed list at money savingexpert.com/kidsfreebies

Use your children’s tax efficiently

THIS may sound callous, but if you’re better off, then so are your kids. Saving money in a child’s name will usually mean it’s tax-free and often you can get a higher rate of interest.

They can earn up to £100 in interest from money given by each parent. Currently that’s about £6,000 – but go lower as interest rates may rise. There’s nothing wrong in having an account for them to put their pocket money in and another for you to put in any larger amounts.

Yet if the money is in your child’s name it is their cash. If you’re worried that they will be tempted to splash out on mobile phone ring tones, a games console or enough sugar to give all their schoolmates a sugar rush, don’t be. Many accounts do allow the adult to stay in control of the money.

Top tips

£25 official England shirt: Asda is offering this year’s official England shirt in-store for £25 for adult sizes 36 to 48 chest. This is a great deal, as prices elsewhere are at least £10 more. The next cheapest is Sports Direct for £35.

Free £10 varnish with £2 Diet Coke: Boots is giving away a £10 Nails Inc nail polish when you buy two 500ml bottles of Diet Coke in-store (£1.16 each). There are four colours to choose from – New York (fuchsia pink), London (nude), Milan (fiery red) and Paris (deep purple). Offer ends June 30.

■ Get Martin’s free tips and moneyoff vouchers emailed to you each week by signing up to moneysavingexpert.com/tips

■ TV money guru Martin Lewis runs the consumer revenge website MoneySavingExpert.com. Ensure you get his weekly email so you’re constantly saving money

For your mini menace

Who says babies belong in soft pink and powder blue? Cool kids can unleash their inner menace with this black and red hooped baby-grow by Fabric Flavours, from £16. Printed on the nappy zone, above the poppers, is the claim – It wasn’t me! See fabricflavours.com

Nice and spicy

IF you’re looking to spice up mealtimes, Levi Roots’ latest creation gives you the chance to enjoy Caribbean food without the effort. The musician and chef, above, who got his big break on Dragon’s Den, has launched a range of nine chilled Caribbean meals, including Jamaican Coconut Chicken Curry, Reggae Reggae Chicken and Caribbean Curried Noodles.

The range, at £2.99, is available from Tesco, with £1 off until June 16.