Children's Savings Awards 2010
Making the decision to save for your children's future is hard. Even when you've decided to open a savings account, pay into a child trust fund or set up an investment, there's a bewildering array of products on offer. Fortunately, the Moneywise Children's Savings Awards is here to help.
Along with our panel of expert judges, we carefully sift through the market to identify the cream of the crop.
And because we know investing for children is a long-term commitment, and you probably won't have the time to switch investments every five minutes, we've focused on those products which have continued to deliver year after year.
In this category, we analysed the monthly data going back over five years to weed out the 'flash-in-the-pan' accounts and find those which are consistently at the top of the table.
We screened the accounts for the kind of small print that could easily trip you up, such as rules restricting withdrawals to an unreasonably small number each year, or refusing access for a year or more.
Our focus on consistency means it's little surprise this year's winning and highly commended accounts took these titles for the second year running, with Chelsea Building Society's Ready Steady Save in the top spot and Halifax Save4it in second place.
Both have succeeded in offering competitive rates for another year, without compromising on the small print. Chelsea, for example, is currently offering a table-topping 2%.
Also worth a mention is the Ladybird Account from the Saffron Walden Building Society, which has offered a very strong and consistent account, and was only just pipped to the post.
Best Children's Savings Accounts
Winner: Chelsea Building Society, Ready Steady Save
Current Rate: 2%
Age Range: Up to 15
Interest Paid: Half-yearly
Maximum Investment: £20,000
Contact: 0800 169 9911
Highly commended: Halifax, Save4it
Some accounts, however, are not available to children over the ages of nine, 10 or 11. Older children, anyway, may prefer a 'youth' rather than a children's saving account, offering a more grown-up bank account, with a card for cash machines.
There are fewer youth accounts on the market, and the rates are often disappointing, so the winners in this category really stand out. Yorkshire Building Society Freedom takes the top spot for the second year running.
It combines strong rates with a cash card, and if your child is aged between 12 and 18, and only just getting to grips with managing their own money, you can restrict their monthly withdrawals.
Saffron Building Society's V4 account takes second place.
Best Youth Account
Winner: Yorkshire Building Society, Freedom
Current Rate: 1.75%
Age Range: 12 to 20
Interest Paid: half - yearly
Restrictions: Parents can restrict monthly withdrawals for children aged 12 to 18
Contact: 0845 1200 100
Highly commended: Saffron Building Society, V4
Child trust funds
The CTF is the first savings port of call for parents. All children born since September 2002 now receive a £250 voucher (or £500 for families on a lower income) for their parents to invest in a CTF when they are born, currently followed by a further £250 voucher when they are seven (or £500 of you're still on a lower income).
These accounts are essentially tax-free savings plans in which parents, friends and family can save up to £1,200 a year until the child turns 18 and gains access to the money. Parents have the choice of cash or equity-based plans – the lowest risk option is a cash CTF which operates like an ordinary savings account.
There are lots of different brands offering these accounts, but at their root are 13 providers. Despite the slightly limited field, there are some very attractive rates on offer. The top three have offered impressively consistent interest rates for a number of years.
A particularly strong year saw Hanley Economics Building Society edge past its closest two rivals to take top prize. Its rate for the last year has been unparalleled, and it currently stands at an impressive 5%. It doesn't allow transfers in, so it is an account for newborns only.
Last year's winner, Britannia Building Society, has delivered less striking rates over the past 12 months than previously, and includes a bonus for the first two years, but its strong track record makes it worthy of the highly commended spot.
Last year's highly commended cash CTF also deserves a mention. The Yorkshire Building Society account does include a bonus for the first 12 months, but even after the bonus has passed it remains reasonably competitive.
Best Child Trust Fund Provider - Cash
Winner: Hanley Economic Building Society
Current Rate: 5%
Minimum Addition: £1
Interest Paid: Yearly
Transfer in: No
Transfer out: No penalty
Contact: 0800 542 8790
Highly commended: Britannia BS
Stakeholders are by far the most popular CTFs. They are designed to offer exposure to the stockmarket but with some risk controls. The cap on charges of 1.5% means they tend to be passive funds which are not actively managed and instead track specific indices such as the FTSE All-Share.
These also employ 'lifestyling', which means funds will be switched into less risky assets from the age of 13, which should help avoid any big losses just before the accounts mature.
Most of these accounts offer just one fund. Judge Nick McBreen, an IFA with Worldwide Financial Planning, says: "This is a tough space for providers to do anything outside of the box." The judges therefore were looking at the quality of the fund on offer, its charges and clarity of information.
The winner in this category, F&C, scored highly on all these criteria. McBreen says: "Low annual charge and no set-up costs makes this the number-one choice."
Judge Philip Pearson, a partner of P&P Invest, adds: "It provides a no-frills, low-cost stakeholder, with capital invested within the FTSE All-Share Tracker fund. Should a wider fund choice be required in the future, you have the option of converting the plan to non-stakeholder, opening up 17 additional funds for consideration."
Judge Marlene Shalton, a certiﬁed ﬁnancial planner with Chambers Morgan James Financial Management, is also impressed by the way F&C communicates with its customers. She says: "It has an excellent website, where you can apply online, and the information is clear and precise."
Highly commended in this category is The Children's Mutual. The judges like the Insight fund at the heart of this product. Shalton adds: "The website is packed with information, which is clear and easy to use.
But it takes a bit of navigating to find the information you want." You can also benefit from a free Mothercare voucher of £40 if you apply online, which the judges agree is a nice added extra.
Best Child Trust Fund Provider - Stakeholder
Winner: F&C FTSE All-Share Tracker
Fund Performance: 1YR 29.98% 3YRS -5.68% 5YRS 36.21%
Min Contribution: £10
Max Contribution: £1,200 a year
Charges: Capped at 1.5% a year
Contact: 0800 136 420
Highly commended: The Children's Mutual
The difference between a pure equity CTF and the stakeholder is that the former offers a wider variety of funds to choose from, but don't have a charge cap. So, in the equity category, the judges were looking for a combination of a good choice of strong funds and reasonable charges.
The winner was The Children's Mutual Baby Bond. This took the top spot last year, and in the interim it has had no challengers for the crown.
McBreen is impressed with the breadth of investments: "Bearing in mind the relatively small capital sums involved with CTFs, the investment choice makes this a compelling option, with 11 funds available from Gartmore, Insight, Invesco and UBS.
It also has the option to take a socially responsible stance on investment for children – and this is to be applauded and supported."
Shalton points out that choice is balanced against reasonable charges: "Initial charges range from nil to 5%, which is the cost for most of the funds, and an annual charge of 1.5%."
Highly commended is F&C – again a consistent performer as it was highly commended last year. It offers 13 funds, and Shalton says: "Many of the funds have consistently provided above-average performance, so you can put together a balanced portfolio with good diversification."
However, one of the main reasons the judges put F&C in second place, Shalton says, is that "you're limited to F&C's own funds. Also, it's not easy to work out the charges, and on a wide range on investment trusts, the bid/offer spread could range from 0.5% to 13%."
Best Child Trust Fund Provider - Equities
Winner: The Children's Mutual Baby Bond
Number of Funds Offered: 11
Min Contribution: £50 a month or £250 lump sum
Max Contribution: £1,200 a year
Charges: 1.5% of the value of the fund each year
Contact: 0845 077 1899
Highly commended: F&C Investments
Self-select accounts are the most flexible kind of CTF. Once you put your money into the account you can buy and sell a huge variety of shares or funds.
This means this sort of account is only suitable if you're confident making decisions about where to invest your money – even taking the risk of investing in single shares. The price of such flexibility, however, is higher charges, so the judges had to weigh these up against the choice offered.
They also considered clarity of information and the functionality of the website.
The winner is 4thekids, managed by Reyker Securities. It offers a wide range of investments. McBreen says: "This is more for the experienced investor. However, charges are low and it allows you to include any suitable unit trust, open-ended investment company or investment trust."
Shalton also likes the website. "It's straightforward and user-friendly," she says. Shalton particularly rates the account for the fact it pays interest on uninvested cash at base rate.
Highly commended in this category is The Share Centre.
Best Child Trust Fund Provider - Self-Select Shares
Min Contribution: No minimum
Max Contribution: £1,200
Investment Choices: Stocks and shares in the UK, US and Europe, unit trusts, open-ended investment companies, investment trusts, bonds, gilts, permanent interest bearing shares, cash
Charges: 1% a year plus £3.50 per deal
Contact: 020 7499 9097
Highly commended: The Share Centre
BEST PERFORMING FUNDS WITHIN A CHILD TRUST FUND
A major boon when picking an equity-based CTF is having a range of strong funds to choose from, so this award is dedicated to the funds themselves. It's split into three categories: low risk, medium risk and higher risk.
Despite the fact that over the long term you can – theoretically – afford to take a little more risk, during difficult times such as these the attractions of lower-risk funds are clear.
'Lower risk' in this instance is defined as funds that may have a relatively low exposure to the shares within them, balanced against bonds and other assets.
The winner is Gartmore Cautious Managed, which is limited at all times to owning 60% equities, balanced with other investments. The fund is Lipper-rated as AA and has a four-star rating from Morningstar, which, as Shalton says, "speaks of its pedigree".
Highly commended is the Close Escalator 100 fund, which took the top spot last year. This fund doesn't invest in equities at all. It's a structured product, designed to offer 100% of the gains in the stockmarket, with a return of capital in the event of falls.
Structured products have run into some difficulties in the last 18 months, as the guarantee depends on the strength of the company offering it, and some of these companies have failed. However, the Close Escalator 100 fund has performed well.
Best Performing Fund in a CTF - Low Risk
Winner: Gartmore Cautious Managed Fund Management
Company: Gartmore Fund Managers
Fund Performance: 1YR 16.15% 3YRS 4.28% 5YRS 32.47%
Lipper preservation: Leader*
Lipper consistency: Leader*
Contact: 0800 289 336
CTF offering this fund: The Children's Mutual
Highly commended: Close Escalator 100 – from The Share Centre CTF
If you are willing to put your investments into equities, however, you could take a look at medium-risk funds, which aim to deliver solid results rather than blow the lights out.
The winner in this category was Invesco Perpetual Income, managed by Neil Woodford, who is broadly rated by all the judges as a very consistent manager.
McBreen particularly likes the fact that although the bulk of the fund is invested in the UK, it has the freedom to invest overseas when and if this offers better value.
Highly commended was F&C UK Select, which aims to provide capital growth in excess of the FTSE All-Share Index by investing in a diversified portfolio of UK equities.
Best Performing Fund in a CTF - Medium Risk
Winner: Invesco Perpetual Income
Company: Invesco Perpetual
Fund Performance: 1YR 13.17% 3YRS -2.95% 5YRS 60.54%
Lipper preservation: Leader*
Lipper consistency: 4
Contact: 0800 028 2121
CTF offering this fund: The Children's Mutual
Highly commended: F&C UK Select – from F&C CTF
Investing for the long term, such as the 18 years involved in a CTF, may mean you have the opportunity to take more risk with your funds, as you will have time to ride out shorter-term losses. So if you have the risk appetite, there are the higher-risk funds.
The winner in this category was Jupiter Managed Global. Shalton particularly rates this fund, which invests in undervalued companies that exhibit favourable growth prospects: "It may be suitable as a core holding for those with a global investment portfolio.
It's well diversified across sectors, holding about 50 to 60 stocks."
Two funds took the title of highly commended: F&C Graphite Enterprise Trust and F&C Commercial Property Trust, both of which are available through the F&C CTF.
The commercial property fund is attracting interest as advisers begin to commit funds to the sector once again. The Graphite Enterprise Trust invests in unquoted companies, primarily in Europe.
Best Performing Fund in a CTF - Higher Risk
Winner: Jupiter Managed Global Fund Management
Fund Performance: 1YR 23.58% 3YRS 4.27% 5YRS 66.48%
Lipper preservation: Leader*
Lipper consistency: Leader*
Contact: 0207 3147600
CTF offering this fund: The Share Centre
Highly commended: F&C Graphite Enterprise Trust and F&C Commercial Property – from F&C CTF
REGULAR SAVINGS PLAN
The final category is for the Best Investment Trust Savings Plan. These plans are attractive as they offer a low-cost, simple way to save regularly for children. They're also great for children who are too old for the CTF.
They won't appeal to everyone, as the structure of investment trusts can be riskier than unit trusts (due to their ability to borrow), balanced with more potential return. However, if they do suit you, there are some strong offerings.
The winner for the second year running was Aberdeen. The judges were impressed with the range of 13 funds on offer, from UK income to emerging markets. Shalton was also impressed by the low charges: "Costs are low, with no initial charge on purchases."
Highly commended was F&C, which offers 14 funds (the largest number in the sector), although all are F&C funds. The charges for sales and purchases are low, at 0.2%, subject to a minimum of £25 a month.
Sharlton likes the level of information on the website, while Pearson says: "The plan provides a winning combination for long-term saving." McBreen agrees it has an "established pedigree", which is the kind of thing any parent wants to hear when investing for their child's future.
Best Investment Trust Children's Savings Plan
Winner: Aberdeen Asset Management
Fund Management Company: Aberdeen Asset Management
Plan name: Aberdeen Asset Investment Plan for Children
Number of investment trusts available through plan: 13
Min monthly contributions: £30
Min lump-sum contributions: £150
Initial charge: Nil
Contact: 0500 000 040
Highly commended: The F&C Children's Investment Plan
November/December 2009: For the children and youth's savings account categories, as well as the best cash CTF provider, we examined Moneyfacts data for the last ﬁve years and filtered the results to remove any let down by the small print.
The shortlists for the best stakeholder, best equities and best self-select CTF were judged by our panel based on service, transparency, choice of funds, administration, charges, ease of access and clarity of information.
For the fund category, judges selected the winners by looking at consistency in performance over the past one, three and ﬁve years, as well as potential for the future. The data was provided by Lipper.
Finally, the best investment trust regular savings plan tailored for children was judged on the basis of minimum investment, fund choice and charges.
* Lipper preservation & consistency ratings that appear in the tables run as follows: Leader = exceptional; then the ratings run from 5 = best to 1 = worst
A feature of defined contribution pension funds. As people move closer to retirement, their tolerance to risk reduces. “Lifestyling” recognises this and provides an automatic switching facility from funds with higher volatility to ones with less volatility as retirement approaches. Generally this means the pension fund manager gradually moving a client from riskier assets such as shares into corporate bonds, gilts and cash as they near retirement.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Structured products offer returns based on the performance of underlying investments. Many products are linked to a stockmarket index such as the FTSE 100 or a “basket” of shares. There are generally two types of product, one offers income, the other growth and investors have to commit their capital for the prescribed term, usually three or five years. The investment is not guaranteed and if the index or basket of shares does not perform as expected over the term the investor might not get back all their capital.
A collective investment vehicle (known in the US as a “mutual” or “pooled” fund) and similar to an Oeic and investment trust in that it manages financial securities on behalf of small investors who, by investing, pool their resources giving combined benefits of diversification and economies of scale. Investors buy “units” in the fund that have a proportional exposure to all the assets in the fund, and are bought and sold from the fund manager. The price of units is determined by the value of the assets in the fund and will rise or fall in line with the value of those assets. Like Oeics (but unlike investment trusts) unit trusts and are “open ended” funds, meaning that the size of each fund can vary according to supply and demand of the units form investors. Unit trusts have two prices; the higher “offer” price you pay to invest and the “bid” price, which is the lower price you receive when you sell. The difference between the two prices is commonly known as the bid/offer spread.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
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.
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.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.