Children’s cash loses value in below-inflation junior cash ISAs

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Prudent parents choosing to put their children’s cash into a junior ISA may be unaware that their child’s money could be losing value against inflation. We’ve carried out some exclusive research which shows only a handful of junior cash ISAs currently beat inflation.

Junior cash ISAs

Junior cash ISAs are tax-free accounts that are aimed at children. Money in a junior cash ISA can’t be accessed until the child is 18.  They are hugely popular – in the last tax year £858 million was paid into junior ISAs with over 60 per cent being held in cash accounts. However, most junior cash ISA providers pay interest that’s below inflation. That means that over time, your child’s cash ISA will lose value.

We’ve looked at the top and bottom four junior cash ISAs that are currently available, and also four junior cash ISAs from big high street banks so that that you can compare their rates:

Top four junior cash ISAs

These are the four junior cash ISAs that we found that pay more than the current inflation rate.

  1. Coventry Building Society Junior Cash ISA pays 3.50% on balances of £1 or more.  You can open this junior cash ISA by post, online, by phone or in a branch. You can also transfer in money from another junior cash ISA or a child trust fund.
  2. Nationwide Smart Junior ISA pays 3.25% on balances of £1 or more.  You can open this junior cash ISA online or in a branch. You can also transfer in money from another junior cash ISA or a child trust fund.
  3. Danske Bank Junior Cash ISA  pays 3.25% on balances of £1 or more (only available to customers in Northern Ireland)
  4. Tesco Bank Junior Cash ISA pays 3.15% on balances of £1 or more. You can open this junior cash ISA online or in a branch. You can also transfer in money from another junior cash ISA.

 Junior cash ISAs paying the lowest interest rates

We also looked at a number of junior cash ISA providers that pay much lower interest rates than the current inflation rate. There are likely to be other banks and building societies that pay rates similar to this, so if you have a junior cash ISA, it’s probably worth digging out the paperwork (or looking online) and checking the interest rate that the savings are earning.

Here’s our list:

  1. Dudley Building Society Cash Junior ISA pays 1.4% on amounts between £100 and £2,500 and 2.5% on amounts above that.
  2. The Newcastle Building Society Junior ISA pays 1.6% on amounts above £1.
  3. The Loughborough Building Society Junior ISA  pays 1.7% on amounts above £1.
  4. Buckinghamshire Building Society Junior Cash ISA pays 1.75% on amounts above £10.

Four big banks’ junior cash ISAs

We wanted to include the interest rates that the big banks are paying on their junior cash ISAs because we know that many parents have opened junior cash ISAs with the bank they have their own account with. The interest rates they’re paying certainly aren’t the worst, but they’re not the best either.

  1. Halifax Junior Cash ISA pays 3% on amounts above £1.
  2. TSB Junior Cash ISA pays 3% on amounts above £1.
  3. Lloyds Junior Cash Isa pays 2.5% on amounts above £1.
  4. Santander Junior Cash ISA, pays 2.5% (or 3% for 123 World or Santander Select customers) on amounts above £1.

SAVVY TIP: You can transfer a junior cash ISA to another bank or building society – or into a junior stocks and shares ISA – so the good news is you can normally switch accounts to get a better rate if there is one available.

How to get the best junior cash ISA rate:

  • Check the interest rate before you open a junior cash ISA and compare it with others to see that you’re getting a competitive rate. Interest rates vary widely between banks and building societies.
  • If you already have a junior cash ISA for your child, find out if you can get a better rate elsewhere.
  • Check that the junior cash ISA you want to switch to will accept transfers in. If it won’t, you can’t switch to it.
  • To do the transfer, you should open a junior ISA with the new provider first. The bank or building society will arrange for money in your existing junior cash ISA to be transferred once you’ve filled in a transfer form.
  • You can also transfer cash child trust funds into junior ISAs to get a better rate.

Related articles:

Junior ISAs – how to save and invest for children

Which junior cash ISAs pay the most interest? Best buy junior cash ISAs

The 25 best selling stocks and shares funds for junior ISAs

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