Why Parents Should Avoid Junior Isas: Regular accounts now offer better rates
- Rates are rising after data showed that inflation had not fallen as much as predicted
- Better returns with regular ISAs because kids’ bills aren’t keeping pace
- Coventry Building Society currently offers the best Junior Isa rate at 4.3%
Savers looking to invest in their child or grandchild’s future may think it makes sense to open a Junior Isa.
After all, these tax-free savings accounts allow you to deposit up to £9,000 a year for a child under the age of 18.
But as rates rise, there are better returns with a regular Isa, as children’s savings accounts aren’t keeping pace.
Rates have been rising for the past two weeks after official figures showed that inflation had not fallen as much as predicted.
Back then, the best fixed rate Isa available was from Paragon Bank, which offered savers 4.4 percent for a year.
Up: Rates rose after official figures showed inflation hadn’t fallen as much as predicted – but Junior Isas hasn’t kept up with the regular accounts
Today savers can get a top rate of 4.56 percent at UBL UK. In contrast Coventry BS currently offers the best Junior Isa at 4.3 per cent and two weeks ago the best Junior Isa available was 4.25 per cent from Skipton BS.
On May 24, official data showed that inflation has remained higher than forecast, meaning interest rates may have to rise further.
Banks price their firm deals based on where they think rates will be in the future. Markets now expect base rates to rise more than previously thought, and could reach as high as 5.5 percent.
In response, banks began raising interest rates, with Secure Trust Bank raising all of its fixed cash Isa rates by 0.2 percentage points last week.
OakNorth Bank and UBL also increased their Isa rates by 0.8 and 0.71 percentage point respectively.
But of the top five highest-paying junior ISAs, only construction associations in Coventry and Monmouthshire have raised their rates over the same period, both by 0.15 percentage points.
One of the lowest paying Junior Isa accounts is Santander, which offers savers 2.8 percent.
Anna Bowes, of the advice website Savings Champion, says it’s essential that banks do their part to help families invest their savings.
She says: ‘It is important that children are not forgotten when interest rates rise. Just as parents and grandparents try to give children the best start in life, providers should do the same.’
a.cooke@mailonsunday.co.uk
Check out the best Isa cash rates in our savings tables