Child Trust Fund rates cut despite savings price war

Parents investing their Child Trust Fund (CTF) money in cash accounts have seen average rates cut by 0.21% in a year despite the ongoing credit crunch boosting payouts across the savings market, analysis by MoneyExpert.com shows.

Average maximum rates on cash CTFs are currently 6.29% compared with 6.5% in June 2007, the independent financial comparison website says.

And the gap between the best-paying and worst-paying CTFs has widened from 2.05 per cent in 2007 to a gaping 3.25 per cent now. Currently the best rate comes from Hanley Economic Building Society with 7.75 per cent with the worst from Abbey which pays a basic rate of 4.5 per cent.

The CTF cuts buck the credit crunch trend in the savings market which has seen banks and building societies increasing savings rates to pull in customer cash as they can no longer raise money for lending on the money markets.

Sean Gardner, director at MoneyExpert.com said: "For savers the only way is up in the credit crunch unless you're a parent with a cash CTF.

"The fact that average rates on cash CTFs has fallen in the past year is really disappointing as these accounts are genuinely long-term with children unable to access the cash until they are 18. Firms could afford to offer better deals.

"That said the biggest shock is the gap between the best and worst. Any parent who is receiving a lower rate than the average should switch or start thinking up a really good excuse to explain where it all went wrong when their children are 18."

MoneyExpert.com's analysis shows the number of CTF providers has fallen from 13 last year to 11 now. Top rates in June 2007 were 7.05 per cent compared with 7.75 per cent now. Lowest rates were a basic five per cent compared with 4.5 per cent now

A maximum of £1,200 each year can be saved in a cash CTF by parents, family or friends on top of the minimum amount of £250 provided by the Government to start the account.

In addition to cash accounts parents with child trust fund vouchers to invest can also choose riskier share-based accounts or stakeholder accounts with a spread of investments.