Encouraging your children to save is a great habit to get them into, but unfortunately, it looks as though they may be getting a raw deal, with our research showing that some children's savings accounts have received shocking rate cuts over the course of 2015 – with some now paying as little as 0.10% yearly.
The figures show that the average children's savings account currently pays 1.56% yearly, down from the rate of 1.61% paid a year ago. While this may seem like only a small drop across the market, this average masks the fact that some individual deals have had severe rate cuts.
In fact, so far this year rate cuts of up to 0.74% have been applied to many child savings accounts, with providers such as Bank of Scotland, Lloyds Bank and Halifax all dropping their rates. Worse still, TSB plans to reduce the rate of 3.00% on its Young Saver account to just 1.00% AER in November – a significant cut. The table below highlights the state of the market in more detail, and as you can see, even the lowest rate available has fallen considerably in the last 12 months.
"It's clear to see that parents or grandparents who have opened a savings account for their child or grandchild must keep a close eye on the interest rates paid," said Rachel Springall, finance expert at Moneyfacts. "Changes to rates in this sector have been rare in the past, so it's disappointing to see that some of the main brands that dominate this market are now choosing to reduce the rates they pay."
This may not be the end of the story, either. As Rachel points out, other providers could follow suit as most rates in this sector are variable so could change at any time, which is why it's so important to stay vigilant and switch accounts if you're not happy with your current deal.
"In particular, parents shouldn't forget the perks of opening a Junior ISA, as these are currently paying the best rates on the market for children and can mature into an adult ISA when the child turns 18," added Rachel.
"November will mark the four-year anniversary of the launch of Junior ISAs, so now is as good a time as any to review where money is being put away for a child's future and move any stagnant savings accounts, including old Child Trust Funds, the proceeds of which can now be freely moved to a Junior ISA."
Compare children's savings accounts and Junior ISAs
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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