New research has found that the interest rates payable on children’s savings accounts are doing little to encourage young people to save.  Rates on cash based Child Trust Funds and other junior savings accounts average just 1 per cent with the Guardian reporting that children are getting a ‘raw deal’.

Children’s savings accounts average just 1 per cent interest

The research from consumer organisation Which? Money found that half of all children’s bank and building society accounts were paying less than 1 per cent AER while the average rate of interest was just 1.01 per cent.

The Guardian reports that ‘the lowest interest is believed to be with First Trust Bank’s Junior Saver account, paying just 0.05 per cent – 50p for every £1,000 or one tenth of the Bank of England base rate.’

Child Trust Fund holders set to be hit further

The Which? research also found that the rates on cash based Child Trust Funds (CTF) were poor, highlighting the Nationwide’s rate of just 1.1 per cent.  And, Which? predicts that rates on CTFs will fall further when they are replaced by Junior ISAs in November.

Junior ISAs are likely to offer attractive rates to lure new savers but the rules prevent existing CTF holders from transferring their savings into a Junior ISA.  This means that lots of savers could potentially be trapped in accounts paying very low rates of interest.

Richard Lloyd, executive director of Which?, says: “It’s incredibly important that young people get into the habit of saving, but banks and building societies are doing little to encourage them by offering such paltry rates.

“The situation is set to get worse because, unless the government allows transfers from child trust funds to Junior ISAs, a whole generation of young savers could be stranded on uncompetitive rates.”