Moneywise Children's Savings Awards 2009
Whether you’re looking for an account to help your child save their pocket money or a long-term investment plan to help put them through university, there’s a myriad of options and it’s not always easy to know what might be most suitable for you and your kids.
This is why Moneywise has launched its first Children’s Savings Awards. Because we know being a parent is hard enough as it is without having to spend hours trawling through masses of complicated paperwork and hundreds of difficult-to-navigate websites, we’ve singled out the best savings and investment plans for you and your children – or grandchildren.
And because we know you don’t have the time to keep switching, we’ve concentrated on those savings accounts and investments that have performed consistently well over time, rather than the last 12 months, and that have the potential to carry on giving you a good deal.
Children’s Savings Accounts
The most basic savings option is a children’s savings account offered by a bank or building society. While these won’t offer your children a great return over the long term (making them unsuitable if you’re trying to build a large nest egg), they offer your kids a safe home for their pocket money and any cheques they get for birthdays or Christmas. The money is safe from the ups and downs of the stockmarket and will be accessible should they want to make a withdrawal.
Many children’s accounts come with incentives like toys and money boxes, but it’s far more important to focus on the rate. For the purposes of these awards we didn’t just look at the rates banks and building societies were paying their youngest savers today, but monitored rates over the last five years to ensure we were awarding the most consistent accounts.
We also factored in the options of small opening balances and branch availability. So while many smaller building societies are offering consistently good rates, we had to discount some of them as they weren’t available nationwide.
However, it’s worth keeping them in mind when you start shopping around for savings accounts as they can provide you with some of the best rates on the high street.
We divided savings accounts into two categories – one looking at pure children’s accounts and the other focusing on youth accounts. For the latter, we only looked at accounts offered to children over the age of 11. There’s not a massive difference between children’s and youth savings accounts, but the latter are generally managed like a current account and have a cash card that enables young savers to make withdrawals when they are out and about.
Our winner of the Best Children’s Savings Account 2009 is Chelsea Building Society’s Ready Steady Save account, which has offered one of the most consistently competitive rates over the past five years; it has featured in the top three best rates for most of the past three years.
This account is closely followed by our runner-up, Halifax's Save4it. It has only been available for two years but over that time it has paid consistently high rates, as did the account’s predecessor, the Halifax Monthly Saver.
Yorkshire Building Society’s Freedom account gained the top spot in our youth category. This account offers a cash card, but to ensure younger savers don’t spend all their savings, parents are able to restrict monthly withdrawals. In second place comes Coventry Building Society’s Intro Savings account. While branches are not available nationwide, the account can be managed by post, telephone and online, and cash can also be withdrawn from any LINK ATM.
Child Trust Funds
In 2005 the government introduced child trust funds (CTFs) to encourage parents to make long-term savings for their offspring. If you have a child born on or after 1 September 2002 you will receive a £250 voucher to start their account – or £500 if you qualify for the full child tax credit.
You then receive a further £250 (or £500 if you still qualify for full child tax credit) when your child turns seven. Both payments must be put into a CTF-approved scheme and family and friends can top them up with a maximum of £1,200 a year. Every penny of the interest will be paid tax-free.
The account belongs to the child and can’t be touched until they turn 18, but it’s up to you to decide whether or how their CTF is invested.
There are three different types of account – cash, stakeholder and equities (stocks and shares). A cash CTF suits investors who are unwilling to take an investment risk. It basically works as a tax-free savings account.
Cash CTF winners:
Our winner in this category, Britannia Building Society, has offered one of the most competitive cash CTFs since 2005. You can run it by post or through one of its nationwide branches. Britannia was closely followed by Yorkshire Building Society, which offers a rate that is guaranteed not to be more than 1% below the Bank of England’s interest rate.
Stakeholder CTF winners:
The second type of CTF is the stakeholder. This was designed by the government to offer exposure to the stockmarket but with some risk controls – the fund invests in a number of companies to ensure the overall risk is reduced should one company do badly.
This type of CTF also includes something called ‘lifestyling’: once your child turns 13, money in the account starts to be moved to lower-risk assets like cash to protect the fund from stockmarket losses as your child approaches their 18th birthday.
The charge on a stakeholder account is limited to no more than 1.5% a year, while charges on all other types of CTF accounts are not restricted in this way.
All CTF providers are required to offer a stakeholder account, and if a provider does not offer its own stakeholder account, it must offer an account available from another provider. However, we’ve excluded these so-called ‘distributors’ from this category.
The majority of stakeholder CTF providers only offer one fund option, so the main criteria here were fund quality, accessibility, low charges and clear information. Our winner in this category, F&C Investments, ticks all these boxes. Philip Pearson, of P&P Invest, says: “F&C offers a clear proposition for the stakeholder fund, and its charges are very competitive. Its online facilities are very helpful, and if you want to move to a non-stakeholder option it’s fairly easy, giving the plan additional flexibility.”
Coming a close second is The Children’s Mutual stakeholder CTF – a clear proposition that is also available online. This company is well known for offering tax-efficient savings for children and was one of the first providers to enter the CTF market.
Equity CTF winners:
The third type of CTFs are equities-based funds that invest in shares. They don’t have the same charge restrictions as stakeholder funds, nor do they have to offer a lifestyling option. The plus point for these CTFs is that they do offer savers access to a wider range of investments. But the downside is that minimum contribution levels are much higher, meaning they are only suited to families who can commit to making substantial payments.
The winner of the best share-based CTF provider is The Children’s Mutual. It has a range of funds from four investment groups: Gartmore; Insight; UBS; and Invesco Perpetual. IFA Julie Hedge of Conforto says: “One of the main features is its flexibility – it has a wide range of fund choices. Since these are not all managed in-house, you’re not necessarily tied to a poor performing fund manager.”
Nick McBreen, an IFA at Worldwide Financial Planning, adds that this option will appeal to ethical investors too as it offers access to the Insight Evergreen fund. “Although this sector is pretty volatile, the increasing focus on global environmental and social issues augers well for funds with green credentials.”
The CTF offered by F&C came a close second. Marlene Shalton, certified financial planner at IFA Chambers Morgan James Financial Management, says: “This fund provides the saver with the ability to put together a balanced portfolio with good diversification.”
Self-select CTF winners:
If you want more control over where your child’s money is invested, there are self-select CTFs. These are accounts where you deposit the money and then buy and sell whatever shares you like. However, these types of CTF are only for the experienced investor; you need to understand what your money is invested in and know exactly when to buy and sell. You’ll also have to pay dealing charges for each transaction, so they can work out more expensive.
This year’s top self-select CTF provider is Selftrade. It offers a wide range of investments, including UK and global stocks and shares; gilts and corporate bonds; exchange traded funds; exchange traded commodities; investment funds; and warrants and other securities. McBreen says: “With flat fees for online and phone trades, no dealing fees or inactivity fees when there’s no trading, and a clear website, this offering has much to commend it.”
Our runner-up is Pilling and Company, which the judges praised for being one of the few providers to highlight self-select CTFs rather than hiding them away in a corner of their website.
Best performing funds within a CTF
When it comes to picking a non-stakeholder equities CTF it’s important to consider what funds are available and how well they have fared. All equity CTF providers offer a number of funds – usually with a mix of their own funds and external funds.
As investors have different attitudes to risk we decided to divide this category into lower-risk, medium-risk and higher-risk funds. We then picked this year’s top-performing funds within a CTF after assessing which ones had demonstrated the best overall performance over the last one, three and five years.
Lower-risk funds tend to have lower equity exposure than their riskier counterparts, with more fixed-interest and cash weightings. They also tend to focus heavily on UK stocks because there’s no currency risk involved. Cautious managed funds fall into this category.
This year’s lower-risk fund winner is Close UK Escalator 100. It’s a structured product, which means it’s not directly invested in equities. While this means it only offers a degree of stockmarket return, it has a 100% capital protection, which guarantees you won’t lose any money. It could be suitable if you’re tempted by stockmarket returns but unwilling to risk losing your capital should the market fall.
Marlene Shalton comments: “This fund is an excellent one for CTFs in that it’s a protected collective fund designed to provide returns linked to the growth of the FTSE 100. Its charges are also competitive.”
In second place is Gartmore Cautious Managed fund, run by Chris Burvill. Philip Pearson describes this fund as “a one-stop shop for lower-to-moderate-risk portfolios”. He adds: “It has consistently performed above average over past years, and could provide an ideal start for a new investor.”
Medium-risk funds have more bias towards equities, with some international exposure. They are more suited to investors who are happy to take a degree of risk in anticipation of higher returns.
Invesco Perpetual Income, managed by Neil Woodford, is this year’s winner. It was praised by the judges for having delivered consistent returns over the last five years. “The stockpicking style adopted by Woodford has been very successful,” says Pearson.
Nick McBreen agrees: “Woodford has an uncanny ability to deliver income and capital growth. His fund invests primarily in the UK, with over 90% of the portfolio in UK-listed companies, but it’s balanced with some international exposure. Over five years he has delivered over 80% for investors, so parents investing for their children can take comfort from its consistency.”
The fund was also highly commended for the second year in a row in the UK Equity Income category of the Moneywise Fund Awards 2008.
Joint runner-ups are F&C Investment Trust and CF Walker Crips UK Growth. The judges applauded both funds for offering good medium-to-long-term prospects.
Higher-risk funds stand to offer the biggest returns, but as they can be very volatile, they should only make up a small proportion of your child’s investments. Funds in this category will be fully, or almost fully, invested in equities, favouring riskier sectors like UK Smaller Companies and Emerging Markets.
Our winner is F&C Private Equity, run by Hamish Meir. This fund aims to cash in on the growth of the Private Equity Global sector and so generate enhanced returns. It has heavy exposure to continental Europe, where private equity is increasingly used to finance the growth of small and medium-sized companies.
Philip Pearson says this is a good choice if you’re prepared to take a risk. “It has yet to show its true potential – it’s high-risk but offers great rewards.”
Marlene Shalton adds: “It’s obviously not for the fainthearted as it’s highly geared. Whether it can continue to give such sterling performance over the next couple of years is a question that will really test the fund manager’s ability.”
In second place comes F&C Global Smaller Companies, managed by Peter Ewins. The fund’s aim is to identify companies that are undervalued but have strong growth potential. Shalton describes it as a “small but beautiful fund”.
Regular savings plans
You can invest in any investment fund for your child or grandchild. However, with high minimum lump-sum investments and higher minimum monthly contributions, they often aren’t ideal for children. For this reason, in our final category, we looked at children’s regular saving plans – a market dominated by investment trusts rather than unit trusts and OEICs.
Investment trusts can be higher risk than other collective investment funds because they are able to borrow money to invest. However, they do offer lower charges. The schemes are typically wrappers, offering access to a variety of trusts.
Our winner this year is Aberdeen Asset Management. It has a wide range of investment trusts covering sectors including UK Income, Small Companies and Emerging Markets. Its minimum contributions are also lower than average at £30 a month or £150 for lump-sum contributions.
Nick McBreen says: “With no initial charges and the flexibility to stop and start contributions without penalty for an open-ended investment term, this is a compelling savings proposition for anybody who wants to save or invest for a child.”
Not far behind Aberdeen’s offering is the F&C scheme. It has 14 investment trusts to choose from and the minimum monthly contribution is only £25 (or £250 for lump sums).
All the winners
Best Children’s Savings Account Winner: Chelsea Building Society, Ready Steady Save
Rate: 3.95% (correct during judging process in December 2008)
Age range: Up to 15
Interest paid: On a yearly basis
Maximum investment: £20,000
Best Youth Account Winner: Yorkshire Building Society, Freedom
Rate: 3.76% (correct during judging process in December 2008)
Age range: 12 to 20
Interest paid: On a six-month basis
Restrictions: Parents can restrict monthly withdrawal amount for those aged 12 to 18
Best Cash Child Trust Fund Provider Winner: Britannia Building Society
Rate: 4.80% including a 1.25% bonus for the first two years (correct during judging process in December 2008) Minimum addition: £1
Interest paid: On a yearly basis
Transfer in: Yes
Transfer out: No penalty
Best Stakeholder Child Trust Fund Provider Winner: F&C Investments
Fund offered: F&C FTSE All-Share Tracker
Fund performance (%): 1yr -22.91, 3yr -2.45%, 5yr 37.57%
Minimum contribution: £10
Maximum contribution: £1,200 a year
Charges: Capped at 1.5% a year
Best Equities Child Trust Fund Provider Winner: The Children’s Mutual’s Baby Bond
Number of funds offered: 12
Minimum contribution: £50 a month or £250 lump sum
Maximum contribution: £1,200 a year
Charges: 1.5% of the value of the fund each year
Contact: 0845 077 1899
Best Self-Select Child Trust Fund Provider Winner: Selftrade
Minimum contribution: No minimum
Maximum contribution: £1,200 a year
Investment choices: Stocks and shares,
investment funds, ETFs, ETCs, warrants
Charges: £12.50 per trade
Best Performing Lower-Risk Fund in a CTF Winner: Close UK Escalator 100
Fund management group: Close Fund Management
Fund manager: Close Investments (UK) Fund Management Team
Fund performance: 1yr 1.75%, 3yr 10.48%, 5yr 21.37%
Lipper Preservation: Leader*
Lipper Consistency: No rating – there are not enough funds in this sector
Best Performing Medium-Risk Fund in a CTF Winner: Invesco Perpetual Income
Fund management group: Invesco Fund Managers
Fund manager: Neil Woodford
Fund performance: 1yr -17.94%, 3yr 17.41%, 5yr 83.1%
Lipper Preservation: Leader*
Lipper Consistency: Leader*
Best Performing Higher-Risk Fund in a CTF Winner: F&C Private Equity
Fund management group: F&C Management
Fund manager: Hamish Mair
Fund performance: 1yr -2.82%, 3yr 48.21%, 5yr 134.23%
Lipper Preservation: 1*
Lipper Consistency: Leader*
Best Investment Trust Children’s Regular Savings Plan Winner: Aberdeen Asset Management
Scheme name: Aberdeen’s Investment Plan for Children
Number of investment trusts available through scheme: 11
Minimum monthly contributions: £30
Minimum lump sum contributions: £150
Initial charge: Nil
* Lipper preservation and consistency ratings run as follows: Leader = exceptional, then the best ratings from from 5 = best to 1 = worst.
For the children and youth’s savings account categories, we examined data provided by Moneyfacts going back over the last five years, which enabled us to make judgements based on long-term performance.
In addition to a consistently high rate of interest we also considered accessibility (prioritising accounts with a good branch network) and account features.
For the best cash CTF provider, we also used Moneyfacts data and judged the providers’ cash products on rates, how easy the account is to run and for friends and family to make contributions, as well as whether it is available nationwide.
The shortlists for the best stakeholder, best equities, and best self-select CTF categories, as well as for the best funds within a CTF, were put together by collating material from each provider on exactly what funds they offered in their CTFs. These shortlists were then sent to our judges who made their decisions based on service, transparency, choice of funds, administration, ease of access and clarity of information provided.
For the self-select category, we also asked our judges to base their decisions on choice of investment, flexibility, clarity and cost.
For the fund category, judges selected the winners by looking at consistency in performance over the past one, three and five years. The data was provided by Lipper.
Finally, the judges were sent a shortlist of the best investment trust regular savings plan specifically tailored for children. They judged this category on the basis of minimum investment, fund choice and charges.
The judging panel:
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.
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.
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.
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).
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
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.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
Child tax credit
A scheme started in 2003 that sought to replace a raft of other tax credits and benefits, the payout depends on the number of dependant children in a family, and its level of income. The amount of credit is reduced as income increases. It is payable to the main carer of a child, usually the mother, and is available whether or not the recipient is working.
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.
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 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 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.