Rates plummet on children's savings accounts

Children looking to invest Christmas cash in their first ever savings account are in for a nasty shock with the returns offered on children’s accounts plummeting since last year, according to MoneyExpert.com.

Instant access children’s accounts now offer a miserly return of just 1.1%, down an incredible 74% from the healthy returns of last year when over a dozen providers boasted interest rates of 5% or more.

Of the major banks now only Abbey offers a rate of 5% - and even this has been cut from an impressive 8% 12 months ago.

Many regular instant access savings accounts impose age restrictions making them unavailable to younger savers. Of the ten instant access savings accounts paying the highest rate none is currently available to savers under the age of 16. Only one account, offered by Halifax, offers a rate of 3% or more to savers as young as 11.

Pierre Williams, Head of Research, MoneyExpert.com, said: “A falling base rate over the last year has of course meant that rates across all savings products have dropped sharply. None have been more severely hit than children’s savings accounts though. It’s a real shame given that we’re trying to instil in our kids the value of saving for a rainy day.

“For many savers falling rates have meant lower mortgage payments as consolation for a decreasing return from savings accounts. The prospect of a cheap mortgage won’t offer much solace for your average 12 year old saver.”

A recent report found that the average pocket money given by parents was £6.24 a week. To match the income from that revenue stream on an annual basis, a child with the average children’s savings account would have to be saving just under £30,000.

Of the providers offering instant access children’s bank accounts Abbey currently tops the table. Its Abbey Youth Plus Account offers an impressive return of 5% AER, matched by the Future Builder from the Bath Investment and Building Society on the first £500 deposited. The next best offer from a major high street provider is a less impressive 2.5% return from the Lloyds TSB Under 19s account.

For more information, visit moneyexpert.com.