Savers who want 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 pay in up to £9,000 a year for a child aged under 18.
But as rates rise, there are better returns with a regular Isa as children’s savings accounts have failed to keep pace.
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Going up: Rates have been climbing after official figures showed inflation had not fallen as much as predicted – but Junior Isas have failed to keep up with regular accounts
Rates have been climbing in the last fortnight after official figures showed inflation had not fallen by as much as predicted.
Then the best fixed-rate cash Isa available was from Paragon Bank, which offered savers 4.4 per cent for one year.
Today savers can bag a top rate of 4.56 per cent from UBL UK. In contrast, Coventry BS currently offers the best Junior Isa at 4.3 per cent and a fortnight ago, the top Junior Isa available was at 4.25 per cent from Skipton BS.
On May 24, official figures showed that inflation has remained higher than predicted, meaning interest rates may need to increase further.
Banks price their fixed deals according to where they think rates will be in the future. Markets now expect the base rate to rise by more than previously thought, and could climb as high as 5.5 per cent.
In response, banks began hiking their interest rates, with Secure Trust Bank increasing 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 points respectively.
Yet of the top five best-paying junior Isas, only Coventry and Monmouthshire building societies have increased their rates in the same period, both by 0.15 percentage points.
Among some of the most poorly paying Junior Isa accounts is Santander, which offers savers 2.8 per cent.
Anna Bowes, of advice website Savings Champion, says it’s vital banks play their part to help families invest their savings.
She says: ‘It’s important that children do not get forgotten as interest rates rise. As parents and grandparents try to give children the best start in life, providers should do the same.’
