New research from consumer group Which? reveals that interest rates for savings accounts designed for children are very low and discourage parents from saving on behalf of their children.
The survey shows that the average children’s instant savings account rates are just 1.1 per cent and one account offers a rate of just 0.05 per cent, ten times lower that the base rate set by the Bank of England.
Which? is hoping that naming and shaming some of the accounts will encourage other banks to review their rates. The lowest paying account, First Trust Bank’s Junior Saver Account, which pays just 0.05 per cent, has said in response to the report that it will be reviewing that account and a new pricing structure is likely to be announced in the next few weeks.
Savings schemes for children that are linked to football clubs were also criticised for offering some of the lowest rates of return. Those offered by Derby and Burnley football clubs paid just 0.1 and 0.15 per cent respectively, whilst Chelsea and Manchester United’s products paid just 0.25 per cent to account holders.
The report also expressed concern that rates attached to child trust funds are likely to fall sharply when they are replaced by junior ISAs in November.
Which? executive director Richard Lloyd said: "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, as 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 government is set to review issues surrounding savings for children which may lead to a rise in tax free limits for junior ISAs and child trust funds.
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