Poor interest rates on children’s savings accounts

Posted on July 24th, 2011 | Categories - Savings

Scandal of poor interest rates on children's savings accountsA new survey has highlighted the poor interest rates on many children’s savings accounts.

The survey by Which? Money found that half of the easy access savings accounts designed for children paid interest of less than 1% gross AER.

The worst offender was First Trust Bank whose Junior Saver account pays an interest rate of just 0.05%.


Such paltry rates of interest are significantly below inflation meaning that the buying power of the savings will be eroded over time. This is especially significant for younger savers who tend to be saving for longer term goals, such as a first car or to meet the costs of going to university.

Encouraging young savers

Parents have encouraged their children to save for generations; however with the costs of going to university rising it has never been more paramount to teach younger generations of the importance of building up savings.

Richard Lloyd, executive director of Which?, 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.”

Child Trust Funds & Junior ISAs

Child Trust Funds (CTF) introduced by the last government were designed to encourage young people and their parents to save by offering tax free returns and contributions by government. However, they are to be replaced by the new Junior ISA (Individual Savings Account) which will not attract contributions by government.

The survey by Which? showed that the interest rates on some CTFs were as low as 1.1% gross AER, with concerns about interest rates for this type of account in coming months and years. Editor of Which? Money James Daly, said: “We would usually recommend that people take out a Child Trust Fund but they are now being shut down and our fear is that, with a closed market and no new customers, they will continue to offer poor value.”

“We are very disappointed with our findings.”

There is concern that existing CTFs will not be transferable to the new Junior ISA and that holders of CTFs will not be able to open a Junior ISA. The fear is that this will create a two tier system with CTFs savers suffering from lower rates of interest than Junior ISA Savers.

Richard Lloyd, said: “Unless the government allows transfers from Child Trust Funds to Junior ISAs, a whole generation of young savers could be stranded on uncompetitive rates.”

Mr Daley added: “A disgraceful decision by the government means that current Child Trust Fund holders cannot transfer.

“Our advice would be not to add anything to an existing Child Trust Fund, take out another savings account and then in November make sure you start saving with a Junior Isa with tax free returns.”

One Response to “Poor interest rates on children’s savings accounts”

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