NS&I has withdrawn its popular children's bond from the market, closing applications to new customers and meaning that no new subscribers will be able to benefit from the 2%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?
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?
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.
"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!
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