...and if you do have spare cash, help out the kids
CHILDREN’S savings rates are facing hefty cuts but there are still some generous Junior Isa deals to be found.
Many parents facing a drop in income as a result of the coronavirus chaos may now struggle to put aside money for their children.
But grandparents with fixed monthly pension payments could find their bank balances are looking much healthier now they are no longer spending money on eating out, holidays, theatre visits and trips to the cinema, for instance.
With interest rates on adult accounts at rock-bottom levels, many may want to use this spare money to give their grandchildren a financial leg-up for the future.
The amount of money that you can put into tax-free accounts for children more than doubled from the start of this month, rising from £4,368 a year to £9,000 on April 6.
Youngsters can earn up to 3.6 pc — far more than the 0.01 pc paid by big banks on their easyaccess accounts for adults.
Junior Isas are essentially the same as a bank or building society savings account, and are open to under-18s resident in the UK.
The big advantage of this type of account is that the child doesn’t pay tax on the interest they earn, and you don’t have to either.
Parents or guardians need to open and manage the account but the money belongs to the child.
Parents, friends and family can all deposit money into the Isa as long as the total stays under the annual limit.
The child can take control of the account when they turn 16 but cannot withdraw money until they are 18.
When they reach 18, the money can be transferred into an adult cash Isa or withdrawn. They may wish to spend it on a car, or a deposit for a flat.
Those aged 16 and 17 can have both a Junior Isa and an adult version of the account, where the annual limit is £20,000.
A child can have both a Junior Cash Isa and an Isa where the money goes into stocks and shares.
The cash version is the more popular one. Some 636,000 were subscribed to in the 2017-18 tax year, according to the latest figures available from HM Revenue and Customs — more than double the 271,000 Junior
Isas linked to shares. The average amount saved into a Junior Isa each year was just £813, so there is little fear of grandparents busting the new £9,000 annual limit. So where should you go? Coventry Building Society pays 3.6pc, and National Savings & Investments (NS&I) 3.25 pc.
Neither have cut their rates since the 0.65 percentage point drop in the Bank of England base rate to 0.1pc last month. But even if they pass on the full cut, the accounts will still pay more than 2.5 pc.
Santander also currently pays up to 3.25pc. However, this rate is set to fall by a huge 1.25 percentage points on May 22 to just 2 pc for customers with its 123 World or Select current account, or 1.5 pc for others.
Nationwide has also meted out harsh cuts on its Future Saver, the account it launched to replace its cash Isa for children.
The account allows one withdrawal a year and lets adults keep control of the money once the child reaches 18.
The rate nosedives from up to 3.5 pc to 1 pc for children of parents who have their main current account with the building society, or 0.5 pc for others. Its Junior Isa, now closed to new customers, also sees a rate drop to 1 pc.