The average rate of interest paid on a children’s instant access savings account is less than 1 per cent on a £1,000 balance, according to Moneynet.co.uk.
With base rate still languishing at a record low it’s not surprising that rates have fallen, but 38 per cent of these accounts are offering just 0.50 or less on balances of £1,000 or more.
The research also revealed that the best deals were available on regular savings accounts, with some offering up to 6 per cent. However, only six providers offered such deals.
“There needs to be reasonable interest rates that appeal to the parents who save on behalf of the child,” said Andrew Hagger of Moneynet.co.uk. “There needs to be more creativity and innovation in this area.”
He said that with some parents living on little or no savings low rates on these account would be not be enough of an incentive to encourage them to save.
However, Mr Hagger conceded that while banks need to introduce more attractive savings rates, parents should also set a good example by teaching their children the value of money management at a younger age.
The Bank of England also announced last week it would keep interest rates at 0.5 per cent, eliminating any hope for higher savings rates.
There are other alternatives, however. Families with children who qualify for the government’s child trust fund (CTF) can earn an average interest rate of 2.36 per cent rate on one of these accounts.
Some providers also encourage clients to build the habit of saving by paying bonuses on top of the original rate. Nationwide Building Society, for instance, pays an extra 1 per cent if the account is topped up by at least £240, while Leeds Building Society pays an extra 1.25 per cent if clients pour in another £600 per year.
Other accounts also discourage withdrawals, offering better rates for those who save regularly, though Mr Hagger said the number of participants is low.
“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.”
