£3MILLION
blow to young savers as Junior Isa rates tumble
CHILD savers are missing out on £3 million a year after High Street banks took the axe to Junior Isa rates. Families poured about £555million into cash Junior Isas (Jisas) last year.
But the average rate is now down to 1.91pc from 2.46pc in January, according to data firm Moneyfacts.
The average 0.55pc cut means children are missing out on £3million in interest payments on this new money alone.
The biggest cuts have been made by Santander. The Spanish bank has chopped its Jisa rate from 3.25 pc to 0.75pc — an annual loss of £225 for every child with £9,000 saved.
The Jisa cuts come just months after Chancellor Rishi Sunak doubled the annual limit parents can pay in from £4,368 to £9,000 in his March budget.
The move was designed to encourage families to put more aside to help children through university or buy homes.
It comes at a time when many parents and grandparents find themselves with surplus cash after being unable to dine out or go on holiday in lockdown.
Office for National Statistics (ONS) figures show that the average household has spent £182 a week less.
Financial adviser AJ Bell found the number of adults adding cash to Junior Isas more than doubled in the past three months.
Laura Suter, personal finance analyst at AJ Bell, adds: ‘Many have used lockdown to organise their finances and put their savings to good use. The number of adults opening a Junior Isa has jumped by 113pc against the same period last year.
‘The average amount put in is also up by a quarter from £1,853 to £2,326.’
Junior Isas were launched in 2011 and offer a valuable tax-free wrapper to families who want to build a nest egg for youngsters. The money can be put into shares or cash. It is then locked away until the child reaches 18 years of age (though children can start managing their account on their own from 16) and any earnings will not be taxed. Parents, or guardians with parental responsibility, open and manage the account but the cash belongs to the child. Any adult can add to the account as long as the total going into it does not breach the £9,000 annual limit, which runs until April 5 next year.
Despite low rates, cash remains by far the more popular choice for parents with seven in ten of the 954,000 opening a Junior Isa in the tax year April 2018 to 2019 picking the cash version.
Savings giant Santander cut the rate on its Junior cash Isa 1 — which is no longer on sale — to a miserly 0.75 pc on August 3.
Parents who hold a Santander 123 or Select account with the bank will see the rate on their child’s pot plummet from 2pc to just 0.75 pc.
Those without the current account have seen a fall to 0.75 pc too, down from 1.5 pc. It is the second cut in three months, bringing the rate down by a savage 2.5 percentage points in total. This is greater than the 0.65 point cut in the Bank of England base rate to 0.1 pc in March.
In mid-May Santander paid a top 3.25pc. The rate nosedived by a huge 1.25 points to 2 pc on May 22.
This month’s cut brings the rate down again to 0.75pc. For those without the current account, the rates fell from an original 2.75 pc in early May to 0.75 pc from August 3.
The best Junior cash Isa deal currently out there — with National Savings and Investments (NS&I) — pays 3.25pc, or there’s Coventry BS at 2.95 pc.
Some 39,000 children hold £92.6million in Junior cash Isas with NS&I, a figure swelled by the 7,661 adults who moved nearly £30 million of their youngsters’ funds to the government bank in the 12 months to March 31. You can switch by filling in the form on NS&I’s website and it will arrange the transfer for you. Other cuts from big banks include Halifax, down from 3pc to 2.45pc along with Lloyds — Bank of Scotland — where the rate is down from 2.5 pc to 1.95 pc.
Tesco Bank has also cut its near-top 3.15 pc rate down to 2.75 pc.
If you are opening an account for teenagers, cash is deemed the better alternative because they have less than five years before they get the money when they hit their 18th birthday. Experts say you should have at least a five-year horizon if you want to invest in shares.
They could build up a bigger sum than leaving the money in cash over the long term. But there is no guarantee of this as the final sum will depend on the ups and downs of the stock market.
Figures from AJ Bell show an additional £50 a month saved would mean an extra £7,924 in your child’s account if shares rose by 5 pc a year for ten years.