NS&I has withdrawn its popular children's bond from the market, closing applications to new customers and meaning that no new subscribers will be able to benefit from the 2% rate. The Treasury-backed provider said that its recently-launched Junior ISA was designed to offer a replacement, but is it worth it, or could you find better options elsewhere?
NS&I changes
The children's bond was a fixed rate account that paid 2% AER tax-free for five years, on balances of up to £3,000. NS&I says that customers who already have such a bond will be able to keep it for the remainder of the five-year term, and they'll contact those savers prior to maturity to let them know the options available.
As it stands, existing customers will be able to renew the bond at maturity if the child is still under the age of 16, but there's no word yet on whether this will remain the case for long. Many could be starting to consider the alternatives, and savers who had hoped to open a new bond will certainly need to look elsewhere. So what are the options available?
The designated JISA
NS&I states that its Junior ISA was specifically designed to be an alternative. It pays the same rate as the now-defunct children's bond – 2% AER, tax-free – yet rather than the £3,000 investment limit, it allows you to pay in up to the maximum Junior ISA allowance each tax year (which for 2017/18 is £4,128). So far, so good!
However, the rate isn't exactly stellar in the current environment – the account doesn't even make it into our Junior ISA Best Buys – with it possible to get far better deals elsewhere. The main draw of the account therefore is the Treasury backing, which means that 100% of your money is protected, rather than the £85,000 limit under the Financial Services Compensation Scheme (FSCS). But given that it's highly unlikely that your child's savings will breach this limit, is there really any need to forgo higher interest rates for the sake of such protection?
A far better idea would be to see what other options are available, and our Best Buys are a great place to start.
Child savings alternatives
Junior ISAs
- The best Junior ISA rate available currently comes from Coventry Building Society, with its Junior Cash ISA (1) paying a market-leading 3.25% from a minimum investment of just £1. It permits further additions but no withdrawals – as per JISA rules – and can be managed in branch or by post.
- Then there's Nationwide, with its Smart Junior ISA boasting a rate of 3.00%, again from a minimum investment of £1. Once opened it can be managed online, in branch or by mobile app, and as with many variable rate accounts, you can transfer it to another provider penalty-free if you later spot a better deal elsewhere.
Child savings accounts
- If you want the best possible cash savings rate for your child, a regular savings account could be ideal. This can be a great way to get your child into the savings habit, and as an added bonus, Saffron Building Society is offering a rate of 4% for the privilege! It's a fixed rate bond that allows monthly deposits of between £5 and £100, but there are no penalties for missed deposits or withdrawals, offering plenty of flexibility.
- For those who want to squirrel away a sum of money for their child, but still want it to be accessible should the need arise, HSBC offers a rate of 2.75% for balances of between £10 and £3,000 on its instant access My Savings account (falling to 0.25% for amounts above that).
Stocks & shares JISAs
- If you're thinking seriously about building up a pot for your child's future, a stocks & shares JISA could be the way to go. These accounts come with a far higher level of risk than their cash-based counterparts, but because you're investing for the long term, there'll be plenty of time to weather out any volatility in the market, and they offer the potential for much higher returns. Check out our stocks & shares ISA page and you'll see that plenty of providers offer JISA varieties, any one of which could be worth considering for those with a high risk appetite and long-term view.
"Providing a savings pot for a child's future will give them a helping hand when they reach adulthood, potentially helping to cover university fees and even getting them on the property ladder," said Rachel Springall, finance expert at monetfacts.co.uk. "It's easy to start saving for a child as a Junior ISA can be taken out, completely tax-free, and matures into an adult ISA when the child turns 18. Savers can choose a cash interest option or a stocks and shares, which in the long-term is likely to outperform the low interest rates on offer today."
However you go about it, finding the best children's savings account for your offspring will likely be at the top of the agenda, so you want to make certain you choose wisely. Read our guide to get started, and from there you'll want to compare the top JISA and children's accounts available – there's more to consider than NS&I!
