Savings rate for children takes a tumble

Bad eggs at building societies and banks are showing little goodwill this Easter, finds Teresa Hunter

IF YOU fancy a wild Easter egg hunt this weekend, try finding a decent children's savings account. It's no yolk. Returns have fallen by more than a quarter since the festive chick last hatched, and twice as fast as those for adult savings.

Many grandparents, aunts and uncles traditionally choose to treat the children in their family with a golden rather than chocolate egg, by giving them cash to avoid rotting their teeth.

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Often they open a savings account on a child's behalf. These accounts used to come with a package of goodies, so Easter bunnies could hand over little gifts as well as money.

But this year they will struggle to pull a rabbit out of the hat if looking for a child's account providing a decent return. It's strictly no children at the counter at many banks and building societies, which have withdrawn accounts faster than you can crack an egg.

The number of children's accounts has fallen by a fifth since this time last year, and so has the return they pay. Freebies and other incentives have completely disappeared.

Last Easter we warned parents to beware of the derisory return on many children's accounts, the very best of which at the time were paying 1.8 per cent.

This rate now looks generous compared with the breathtakingly low returns offered on many children's pocket money accounts, although the Skipton is still paying 1.8 per cent and the Yorkshire Building Society 1.75 per cent.

Many other institutions have slashed their rates, with a number, including the Dunfermline, paying an insulting 0.1 per cent on a range of accounts.

Overall, the average return from a children's instant access account has fallen to 1.01 per cent from 1.37 per cent.

Children have been literally abandoned, according to savings experts at Moneyfacts, and to an even greater extent than adults.

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Spokeswoman Michelle Slade said: "Children's accounts have almost become the forgotten accounts, abandoned by both bank and building societies.

"Traditionally there were a few institutions which always tried to keep faith with children. They offered them interest which was much higher than an adult could earn on small sums. But they did this to get them into the savings habit and teach them the wisdom of thrift. These days that all seems to have gone by the board."

The Nationwide, which was always a favourite with parents opening accounts for children and which prided itself on being generous to the younger generation to help them develop a saving habit, is now only paying 0.75 per cent.

A spokesman denied that the society had turned its back on kiddies. He said: "Nationwide has absolutely not abandoned children. Our account fares well in comparison with other institutions."

However, Nationwide has cut its rate from 1.24 per cent this time last year to the current 0.75 per cent.

By comparison, the Yorkshire Building Society has maintained its faith with young savers, maintaining its return at last year's levels.

Martin McIntosh, savings manager at Yorkshire, said: "The importance of encouraging children to save cannot be underestimated. They will be thankful in later life when going to university or buying their first car or home.

"Our account can be opened with as little as 10, ensuring it is available to all levels of saver, and the cash card allows young savers to enjoy a little financial independence as they become more mature. Crucially, parents have the option of setting a monthly withdrawal restriction for under-18s to help account holders manage their finances month to month, without letting them spend all their savings in one spree."

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The only ray of sunshine on the horizon is that the children's accounts are still paying slightly more than adults, where a jaw-dropping 56 per cent are paying 0.1 per cent. Overall, adult easy access returns have fallen since this time last year to 0.72 per cent, from 0.83 per cent.

If you do want to open a savings account for your granddaughter, niece or nephew then you must choose carefully to avoid them being stuck on an insulting rate.

There are still a few offers out there worth considering, although these may involve either regular saving or locking your money away.

The Halifax is offering a regular savings account paying 6 per cent for a year if you make a monthly deposit of at least 10, although last year this same account was paying 8 per cent. A Halifax spokeswoman said: "The rate has fallen but it is still one of the best children's rates in the market."

Alternatively, if you want to lock your cash away for five years then Clydesdale will pay 4.75 per cent for five years.

When it comes to instant access, Royal Bank of Scotland is paying 1.49 per cent and Halifax 1.01 per cent up to 5,000.

Putting money away for children normally makes sense because of the generous tax breaks available. Each child has a personal tax allowance of their own, which means they can earn 6,475 interest on cash given to them by anyone apart from their parents.

When it comes to their parents, children can earn 100 interest tax-free from cash given to them by each parent, making a total of 200.

'Having my own account means I can go shopping myself'

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ZACH Keane of Livingston has had a bank account since he was a baby, but it was only when he wanted to start going into town with his friends and shopping independently that he decided to switch his funds to the Royal Bank of Scotland, writes Teresa Hunter.

Mum Nancy, who opened his first account for him, recalls: "I opened it with his christening money, and then deposited all his birthday savings each year, so it began to build up into a tidy sum. At the time I was living in England, and so we opened the account with a local building society. But that wasn't much good to him up here, and I also noticed that the interest rate had deteriorated.

"About the same time, he started to ask about going into town with his friends shopping, and I liked the idea that the Royal Bank of Scotland account had a debit card. This meant he wouldn't need to be carrying cash around, which gave me peace of mind."

Zach, 13, particularly likes it because mum pays his pocket money in regularly via a standing order.

He said: "I like having all my money in one big pot which I can get at using my card. At my school, we are allowed to go into the shopping centre for lunch with parental consent, so I need to be able to get at money to buy my lunch.

"But saving money is quite important to me as we have a lot of after-school clubs, and I have other interests, so I need to be able to pay my way. Also, for Christmas I got a PSP games console, and because I had some money in my account I was able to buy the games I wanted."

Young people under pressure from recession

THE recession has had a profound impact on young people, making them more anxious and conscientious when it comes to money matters, and cutting social spending in half, according to the 2010 Royal Bank of Scotland MoneySense report.

The survey of 10,000 12 to 19-year-olds shows that they are now more likely to plan and budget their spending and prioritise saving, compared with a year ago. Seven out of ten Scottish teenagers said their money management skills had improved.

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Scottish teenagers are among the most prudent. They are more likely to earn their money by doing chores at home than teens in any other region (34 per cent say they earn their money this way), and have a typical income of 38.14 each month.

But they are not particularly optimistic about what they will earn when they leave school, with expectation of a first salary at just over 11,000.

They are ambitious about getting on, though, and say they will earn more than 31,000 by the time they are 25 and over 51,000 by the time they are 35.

Teenagers expressed worries about the recession, which has exposed many to "adult" money issues as they share in the general household budget tightening and increased awareness of unemployment and parents' money worries.

This has not only influenced their thinking, it has had a direct impact too: teens in Scotland spend nearly half the amount they spent last year on going out and socialising.