Children are earning pitiful amounts of interest on savings accounts, with the worst paying just 50p for every �1,000 saved
Children are earning pitiful amounts of interest on their savings accounts, with the worst paying just 50p for every �1,000 saved.
Research by consumer organisation Which? Money shows children are getting a raw deal from bank and building society savings accounts, with half paying 1% AER or less and the average rate at 1.01%.
The lowest interest is believed to be with First Trust Bank's Junior Saver account, paying just 0.05% ? 50p for every �1,000 or one tenth of the Bank of England base rate.
Accounts affiliated to football clubs also pay mean amounts, with those linked to Manchester United and Chelsea offering just 0.25%, while Derby County's Junior Rams account pays 0.1%.
The rates paid on cash-based child trust funds (CTFs) aren't much better, with Nationwide Building Society paying 1.1%, although this rises to 2.1% if the parent pays in �240 or more each year. Which? predicts the interest paid on CTFs will decline still further now they have been closed to new beneficiaries.
They are to be replaced from November by Junior Isas, which will enable children's savings to earn tax-free interest but will not benefit from a �250 contribution from the government at birth and age seven.
Product providers are likely to offer decent rates on these, at least when they are first introduced, but the rules prevent CTF savers from transferring their funds to Junior Isas, meaning millions of young savers could be trapped in poor rates.
Richard Lloyd, executive director of Which?, says: "It's incredibly important that young people get into the habit of saving, but banks and building societies are doing little to encourage them by offering such paltry rates. The situation is set to get worse because, unless the government allows transfers from child trust funds to Junior Isas, a whole generation of young savers could be stranded on uncompetitive rates."
The highest rates are currently offered by Northern Rock's branch-based, easy-access Little Rock account, paying 3% AER to children up to the age of 16. The Charity Bank Small Steps Account, again for children up to 16, is post and phone operated and pays 2%.
The Chelsea and Chorley building societies also offer branch-based accounts paying 2%.
Source: http://www.guardian.co.uk/money/2011/jul/24/children-savings-accounts-interest-rates
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