Children’s savings awards 2016
Last year, Halifax published the sad statistic that one in three children worries about money as they adopt their own parents’ financial fears. Perhaps they would worry less if they knew they had a nest egg that had been growing since they were born.
That’s where the Moneywise Children’s Savings Awards come in. We award the very best providers of savings accounts and investment plans aimed at children, where the rate of return they’ll receive is more than matched by customer service.
This is important stuff. Educating children early about money can help them appreciate the benefits of creating wealth over the long term and instil a savings culture in them. Moreover, it can help build serious wealth in the years ahead, helping children later in life when they face university fees, housing costs, and even learning to drive.
Even modest amounts invested regularly can grow to a tidy lump sum that will help when a child turns 18 (or later). Indeed, the earlier you start, the easier it will be to grow their money. So whether you’re putting aside birthday money your children have been gifted or you are ready to start a more meaningful savings or investment plan, here’s our look at the best children’s savings products on the market.
Best savings account
Winner: Mansfield Building Society Young Saver (1st issue)
Highly commended: Holmesdale Building Society Young Saver
While the rates you can obtain are – in this low- interest-rate environment – slender, these accounts are very low risk and can help teach children about saving and interest.
With that in mind, we asked SavingsChampion to look at all instant-access children’s accounts that are accessible nationwide, with a low minimum opening balance of less than £100. It then chose the accounts that it believes have offered the best returns over the past three years.
In order to be a contender, the account needed to have been open for new business for at least three years and have a low minimum balance.
Our winner, Mansfield Building Society’s Young Saver, pays a competitive rate of 2.50% and has done since November 2011 – so it is certainly consistent.
Account holders are restricted to a maximum of six easy-access withdrawals per calendar year, with further withdrawals subject to the loss of 30 days’ interest on the amount withdrawn. “However, we felt that this level of access should be sufficient for the majority of children, particularly as the rate is significantly higher than the next best option,” explains judge Anna Bowes, director at SavingsChampion.
Mansfield itself was founded in 1870, hewn out of the industrial past in the heart of the Nottinghamshire coalfields and textile industries. Its assets reached the £100,000 mark in 1928, hit £1 million in 1947, £100 million in 1992, £200 million in 2005 and more than £250 million in 2012.
While it operates from Mansfield town centre and has a small network of branch offices in Chesterfield, Sutton and Kirkby, its savings products are available throughout the UK.
Highly commended in this award is Holmesdale Building Society’s Young Saver account, which pays a decent rate of 2.25%, having been increased from 2% in May 2015.
“This was a move that is more than welcome when many providers are cutting rates for existing account holders,” says Bowes.
“The account can be opened in branch or by post and therefore is accessible to the vast majority of children.”
Best youth account (from age 11 upwards)
Winner: HSBC My Savings
Highly commended: Holmesdale Building Society Young Saver
This category is self-explanatory: we look for the best accounts appealing to pre-teens and teenagers – children who, as they age, will more than likely take a more active interest in money and savings.
They’ll probably want their own cash card and be able to manage it themselves online too, which is where youth accounts come in.
Our winner, HSBC’s MySavings, has a “fantastic rate and a straightforward easy-access savings account that also comes with a current account offering for those aged 11-plus with a visa debit card,” Bowes says.
It’s worth bearing in mind, however, that the maximum balance that earns interest is only £3,000, so those who are regularly saving may also need to open a savings account alongside it.
Highly commended is once again Holmesdale’s Young Saver account – making it a double-whammy of awards for the small building society.
Holmesdale is similar to Mansfield in that it was founded in 1855 by Thomas Buckland, whose intention was to provide a means of thrift and home ownership for local people – something that has remained Holmesdale’s aim ever since.
This has meant broadening out its customer base from local people to members across the country.
“It also has a high maximum deposit level and is available to young people right up to the age of 23,” says Anna Bowes.
Best junior Isa
Winner: Coventry Building Society Junior Cash Isa
Highly commended: Nationwide - Smart Junior Isa
Parents who are concerned about tax, or simply want a savings vehicle their children cannot dip in and out of, could do worse than a Junior Isa. These have a maximum annual contribution of £4,080 and, while children can take control of the account when they’re 16, they can’t withdraw the money until they turn 18.
This year, we have awarded top spot to Coventry Building Society’s Junior Cash Isa. This account was launched on 5 April 2012 and since then has paid a straightforward rate of 3.25%. “No bonus, no complications, just consistency,” Bowes states.
Coventry is a multi-award winner in our own Moneywise Customer Service Awards – indeed, it won Most Trusted Savings Provider in our 2015 Customer Service awards – making it a smart choice for parents who value efficient service.
Another simple, straightforward competitive account is our runner-up, Nationwide’s Highly Commended Smart Junior Isa. Nationwide removed the bonus ‘teaser’ rate from this account back in February 2014 and that, along with a consistently competitive rate – currently 3.25% – makes it a worthy winner.
Best pension for children
Winner: Standard Life Stakeholder Pension Plan
Highly commended: Legal & General Stakeholder Pension Scheme
For parents who may already be able to cover the expense of university (and even a deposit for their child’s first home), a pension makes sense – in particular, a stakeholder pension.
Remember that, while they are a great vehicle for long-term children’s savings, children won’t be able to access the cash until they are at least 55 under current legislation.
Stakeholder pensions were launched in 2001 and must offer low charges and no-frills minimum standards – making them simple and easy to understand for parents wishing to contribute on behalf of children. They are also tax efficient as you can get tax relief on up to £2,880 each year, in each child’s pension.
Our winner this year, the Standard Life Stakeholder Pension Plan, is a functional ‘no bells and whistles product’, which allows minimum investment contributions of just £20 each month and has a core range of 30 investment fund options and 15 lifestyle profiles.
“The investment options are made up of Standard Life active and passive funds, and each has a standard annual charge of 1%,” explains judge Patrick Connolly, a certified financial planner at Chase de Vere. “The simplicity of this product makes it a good choice for novice investors.
The stakeholder account can be managed online, as can many other children’s savings accounts, which is potentially a great education tool for children to learn about their investments as they get older.”
Highly commended this year is Legal & General’s Stakeholder Pension Scheme, which provides access to 26 Legal & General funds and 15 external funds managed by Aberdeen, JPM, GLG and Newton. Contributions start from just £20 each month and, while the standard charge is 1% a year, there are additional charges if the external managers are selected or if a paper rather than online application form is used.
￼￼￼￼￼￼￼￼￼“It is a good choice but with the extra charges it risks falling into a gap between stakeholder pensions and personal pensions, which have a larger external fund range,” says Connolly. “This product also provides online access.”
Best investment Jisa
Winner: Fidelity Junior Isa
Highly commended: JP Morgan Junior Isa
While our Cash Junior Isa award will suit parents who cannot entertain any risk to their child’s money or for people who are saving for a short timeframe, longer-term and less risk-averse people might prefer to look at an Investment Junior Isa for their offspring.
Stockmarket-linked investments historically have delivered better returns than cash, meaning that parents who invest in an investment Junior Isa stand a better chance of seeing their money grow to a sizeable pot that in turn will give their child more options.
That said, anything equity-related carries risk, of course, meaning you could see some volatility over the time you hold this type of investment. But if you are investing for the long-term or have at least a 10- year time horizon, you should have plenty of time to ride out any volatility in the stockmarket.
This year’s winner – Fidelity – offers an extensive range of more than 2,600 investment fund options. Fidelity has tried to make this as easy as possible for investors who aren’t taking independent financial advice by also providing all-in-one fund solutions and its own list of recommended funds.
However, with more than 200 funds on its ‘Select’ list, and no guarantee the funds will perform well, it’s worth remembering to take guidance and/or advice should you need it.
“Minimum investment amounts are £50 for monthly premiums and £500 for lump sums and while investors have to pay both investment and platform charges, these are reasonable compared with comparable Junior Isa offerings,” says judge Connolly.
Highly commended is JP Morgan’s Junior Isa, which might only offer access to its own investments but still offers a wide choice of good-quality options with 39 OEICS and 26 investment trusts to choose from including equity, bond and balanced funds. “Some of these funds Chase de Vere recommends to our own clients,” Connolly adds.
“The product accepts contributions from £50 each month or £100 single amounts. The charging structure is clear and transparent, and it provides particularly good value for those putting regular premiums into investment trusts.”
Best children’s investment scheme
Winner: Baillie Gifford Children’s Savings Plan
Highly commended: Aberdeen’s Investment Plan for Children
For parents whose children are not eligible for Junior Isas or those who want more control over their cash, a children’s investment plan can offer access to a range of investment trusts at a low cost.
For the first time in five years, Aberdeen’s Investment Plan for Children has been knocked off the top spot – by Baillie Gifford’s Children’s Savings Plan. Our winner offers four diversified global and three specialist funds.
Of particular interest to parents might be the Scottish Mortgage and Monks investment trusts, both of which are ideal for children’s savings, giving broad access to UK and international stockmarkets with very low charges.
“These are real ‘buy-and-hold’ funds for children and by offering these good-quality trusts, with low charges and minimum premiums of £25 each month or £100 for single amounts this is a very good choice for many people,” says Connolly.
So to our highly commended award, taken after four years in a row at the top by Aberdeen’s Investment Plan for Children.
Connolly says Aberdeen’s investment approach of investing in good-quality companies over the long term should be an ideal mix for children’s investments.
“This plan gives access to 16 underlying investment trusts with six of these based in Asia, reflecting Aberdeen’s strength in the region and in emerging markets generally,” he says.
“However, investors need to be aware that investing in these regions can be high risk and also that fund charges are typically higher in these more specialist trusts.”
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Open-ended investment companies are hybrid investment funds that have some of the features of an investment trust and some of a unit trust. Like an investment trust, an Oeic issues shares but, unlike an investment trust which has a fixed number of shares in issue, like a unit trust, the fund manager of an Oeic can create and redeem (buy back and cancel) shares subject to demand, so new shares are created for investors who want to buy and the Oeic buys back shares from investors who want to sell. Also, Oeic pricing is easier to understand than unit trusts as Oeics only have one price to buy or sell (unit trusts have one price to buy the unit and another lower price when selling it back to the fund).
A form of money purchase defined contribution pension launched by the then Labour government in April 2001 with low charges and no-frills minimum standards. Designed to appeal to people on low and middle incomes who wanted to save for retirement but for whom existing pension arrangements were either too expensive or unsuitable, the stakeholder didn’t really take off and looks to be superceded by the National Employee Savings Trust (NEST).
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.