Children's savings accounts - not much incentive to save

Andrew Hagger at Moneynet.co.uk comments on the Children's Savings market: We keep hearing how important it is to have some savings behind you, but when you look at the rates of interest on offer for children's accounts, you can see why some parents just don't bother.

Much of the UK was caught up in a decade long credit binge before the crunch took hold and only now are some people starting to wean themselves off their reliance on credit.

If we want our children to grow up with some savings behind them and to appreciate the value of money rather than reach for the plastic, providers need to offer better rates and incentives to encourage parents and their youngsters to save regularly.

Paying interest of less than £10 per year on a £1,000 savings balance isn't enough to get the younger generation visiting their bank on a regular basis.

With base rate still languishing at a record low it's not surprising that rates have fallen, however 38% of accounts are offering a pitiful 0.50% or less on balances of £1,000 or more.

If you've got children that qualify for the government's Child Trust Fund (CTF) initiative the rates are more attractive at an average 2.36%.

Even those providers that offer some of the lower CTF rates encourage the savings habit by paying an extra bonus. For example Nationwide BS 1.10% pays an extra 1% if the account is topped up by a minimum £240 per year whilst Leeds Building Society 1.80% pays an extra 1.25% if you top up by £600 per annum.

As with the adult savings market some of the highest rates are offered for Regular Savings accounts.

The terms and conditions of this type of account tend to discourage withdrawals but help instil the discipline of saving regularly, with the carrot of fixed rates as high as 5% from Principality BS and 6.00% from Halifax payable for those who can salt away at least £10 per month for 12 months.

Unfortunately there are only half a dozen providers currently offering regular savings accounts for children, an area that is crying out for more innovation and competition from the rest of the banks and building societies.