Here, we take a closer look at the data and consider whether children's accounts are worth investing in.
How have rates changed on children's savings?
The Bank of England (BoE) has hiked the base rate 13 times since 15 December 2021, and it hit 5% on 23 June 2023. Typically, providers pass on increases in the base rate, which is bad news for borrowers but good news for savers.
Instant-access accounts that pay variable interest should feel the most immediate impact of these increases. But when we analysed Moneyfacts data, we found that boosts to children's instant-access rates may have been less generous during that period than for equivalent adult products.
The graph shows the relationship between base rate changes and the top interest rate on restriction-free children's and adult instant-access accounts each month between December 2021 and July 2023.
The top rate for both types of accounts has risen significantly since the base rate started going up. The top children's instant-access saver was 1.8% AER in December 2021, compared with 4.3% in July 2023, while the top rate on adult instant-access accounts was 0.7% compared wtih 4.35%.
However, the gap between the top rates for both products has closed, and the top-rate adult instant-access account now pays more than the comparable top children's deal.
This suggests that adult instant-access accounts may have benefitted from much bigger interest hikes in the past year and a half. For this product, there's a 3.65 percentage point difference between the top rate in December 2021 and July 2023, compared to 2.5 percentage points for children's instant-access accounts.
The top rate for children's accounts stagnated at 3.05% from August 2022 to November 2022, while the top deals for adult instant-access products were more competitive and climbed steeply during the same period, seemingly in line with successive base rate rises.
None of the top rates have come anywhere near matching or beating inflation though. It was 5.4% in December 2021 and, after peaking at 11.1% in October 2022, dropped to 7.9% in June 2023.
Find out more:How else can children save?
Children's instant-access accounts offer the flexibility to dip into the money when you need it, but you might be able to earn a better return elsewhere. Here are some other ways to save for your child's future:
Children's regular savers
Similar to the adult account, regular savers require you to deposit cash every month and are designed to encourage young people to get into the habit of saving. They usually run for a set period of time too – for example, 12 months.
Rates tend to be more generous than other accounts, but there are usually lots of caveats to watch out for. These include stringent withdrawal limits and penalties for missing payments.
Fixed-rate bonds for children
There are only a handful of fixed-rate accounts for children on the market, and most can be beaten by the best instant-access accounts or regular savers. Some adult fixed-rate accounts are open to customers of any age, so there may be better returns available if you look elsewhere in the market.
Junior Isas
Junior Isa money is locked away until the child turns 18 – at which point it converts to an adult Isa and the child has full control over the money. Junior stocks and shares Isas also have the advantage of lower annual fees and a wider range of investments.
Find out more:NS&I premium bonds
Anyone aged 16 or over can buy premium bonds from National Savings & Investments (NS&I) and you can buy them on behalf of a child or grandchild, giving them a chance of winning up to £1m.
The minimum investment is £25, with a maximum holding of £50,000. Children can take charge of managing their premium bonds when they turn 16.
However, if you're looking for guaranteed growth on the cash being saved, premium bonds aren't the way to go. Even with average luck, someone investing £1,000 will probably win nothing over the course of a year.
Find out more:Children’s pensions
It's never too early to start saving for retirement. You can help a young person build their savings by opening a pension fund that they can access when they reach retirement.
Pensions can be opened for a child anytime from birth until they turn 18 and, although only a parent or legal guardian can start one, anyone can contribute once it's up and running.
You have until 5 April 2024 to use the current annual allowance. But you don’t have to pay in this much: most providers let you contribute as little as £25 a month.
Find out more:source https://www.which.co.uk/news/article/have-childrens-savings-rates-kept-up-with-base-rate-rises-ad4ic0g2KfhF