Kids’ Christmas cash loses value in below-inflation junior ISAs

Prudent parents choosing to put their children’s Christmas cash into a junior ISA may be unaware that their child’s money could be losing value against inflation, says Sarah Pennells founder of the UK’s leading money website for women, SavvyWoman.

Kids’ Christmas cash loses value in below-inflation junior ISAs

Children are often given cash for Christmas and parents may choose to put their money into a savings account like a junior cash ISA. However, unless they choose a top paying junior cash ISA, their child’s savings will lose value because of the effects of inflation.

Inflation is now at 3.1 per cent*, but there are only three** junior cash ISAs that are available to customers throughout the UK that currently beat it. They are:

  1. Coventry Building Society Junior Cash ISA, 3.50 per cent
  2. Nationwide Smart Junior ISA 3.25 per cent
  3. Tesco Bank Junior Cash ISA, 3.15 per cent

Those paying the lowest rates on junior cash ISAs include the Dudley Building Society (1.4 per cent on amounts up to £2,500, but 2.5 per cent on amounts above that), the Ipswich Building Society (1.6 per cent), the Newcastle Building Society (1.6 per cent) and the Loughborough Building Society (1.7 per cent).

£858m was paid into junior ISAs*** in 2016-17 with over 60 per cent being held in cash accounts****.

Sarah Pennells, founder of SavvyWoman, says:

 “It’s appalling that only three junior cash ISAs currently beat inflation out of the dozens on the market. Millions of children will probably get some cash for Christmas, but if it’s paid into a junior cash ISA it could be worth less next Christmas!

If you’re going to open a junior ISA for your child, make sure you take some time to pick the right account, and don’t just opt for one that your own bank or building society offers. It could pay a lousy rate of interest.

The good news is that you don’t have to put up with lousy rates – you can transfer a junior cash ISA to another bank or building society – or into a junior stocks and shares ISA – so don’t be afraid to switch if you can do better elsewhere.

Junior ISAs can’t be accessed until the child is 18, but the bad news is that no adult cash ISAs beat inflation***** at the moment so finding a decent home for junior cash ISA money when the account matures could be something of a challenge.”

 SavvyWoman’s tips on getting the best interest 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.

Junior ISA basics:

  • A junior ISA is a tax-free savings account for anyone under the age of 18 living in the UK. It can be opened by a parent or guardian on behalf of their child and the child can take control of the account when they reach 16.
  • Children can have one cash and one stocks and shares junior ISA. Children can’t have a junior ISA and a child trust fund, but since April 2015 the government has allowed child trust funds to be transferred to junior ISAs.
  • Money cannot be withdrawn until the child is 18. When the junior ISA matures it is automatically rolled over into an adult ISA unless the child withdraws the money.
  • Anyone can contribute to a junior ISA up to an overall limit, but a parent or legal guardian must set it up. In the 2017 to 2018 tax year, the savings allowance for junior ISAs is £4,128.
  • Children are not locked into the same junior cash ISA provider and can transfer between different banks and building societies – or to a junior stocks and shares ISA. However, not all providers accept money transferred from another junior ISA.


*As measured by the CPI:

**Danske Bank also has a Junior Cash ISA with a rate that beats inflation (3.25 per cent), however it is only available to customers in Northern Ireland.

***From November 1st 2017, it is six years since the launch of junior ISAs as a tax-free savings or investment account, that were designed to replace child trust funds.

****Individual Savings Account Statistics from HM Revenue & Customs:

*****Adults’ ISA rates are even worse and there are no cash ISAs currently available that beat inflation. The best rate SavvyWoman can find is 2.2 per cent from United Trust Bank’s Cash ISA, which is fixed for five years and only accepts transfers in.

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