Children hit in the pocket as banks make rate cuts to saving accounts

Halifax is reducing a variable rate on its junior cash Isa by one percentage point

Updated: 

Child savers are seeing the returns on offer plunge as some providers are making rate cuts which are deeper than the recent fall in the base rate.

Among the savings rates being cut, Halifax is reducing a variable rate on its junior cash Isa by one percentage point - four times the recent 0.25 point reduction in the Bank of England base rate.

An "enhanced" interest rate of 4%, which had been paid to children whose parents also hold a qualifying Isa with Halifax, will fall to 3% from December 8.

Children with this type of account whose parents do not hold also an Isa with Halifax have been receiving a rate of 3%. This 3% rate will not change when the 4% rate goes down on December 8.

Halifax declined to say how many children are currently on the 4% deal. It said the base rate is not the only factor it takes into account and it regularly reviews rates in line with the market and its competitors.

Skipton Building Society is also among the providers to have made rate cuts to children's savings accounts, including a 0.65 percentage point cut to its junior Isa account for new customers only, taking the rate on offer from 2.65% to 2%. Existing customers are unaffected and are still receiving the higher 2.65% rate.

Junior Isas are long-term tax-free savings accounts which savers can take over and have access to when they reach adulthood. They were introduced as a successor to Child Trust Funds, to encourage children to get into the savings habit.

The Bank of England base rate was cut from 0.5% to 0.25% in August, sending a fresh wave of savings rate cuts across the market at a time when savers were already suffering poor returns.

During this month alone there have been 139 rate cuts and just 20 increases across the adult savings account market, according to financial information website Moneyfacts.co.uk. Last month there were 388 rate cuts to adult savings accounts and just three increases across adult savings accounts.

Rachel Springall, a spokeswoman for Moneyfacts, said: "It's hugely disappointing to see children's savings accounts facing the same treatment as adult accounts, but it just shows how important it is for parents to review the rate regularly to make sure the account remains competitive.

"If a good deal turns bad then consider switching the account somewhere else. For example, Coventry Building Society currently offers a 'best buy' Junior Isa paying 3.25% and accepts transfers in - just keep in mind that it is a variable rate so it could change over time."

A spokeswoman for Halifax said: "The Bank of England base rate is only one of a number of factors that we take into account when reviewing interest rates. "We regularly review our savings rates in line with the market and our competitors. We are writing to all affected customers to give at least two months' notice of these rate changes, in order to provide them with the opportunity to change accounts should they wish to do so."

A Skipton Building Society spokeswoman said: "Our children's savings accounts remain our highest-paying accounts - such is the value we place on encouraging our younger members to save for their life ahead.

"However given the low interest rate environment we've made the difficult decision to relaunch our new children's products with a slightly lower rate, and we do understand new customers will be disappointed to see this. But we do have to balance maintaining good value for them with operating sustainably for the benefit of all our members."

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