Children born this year may have to wait until 80 to receive their state pension, yet most financial institutions are doing nothing to encourage them to save.
Chancellor George Osborne announced plans in the budget to link the state pension age to improved longevity, and some insurers have calculated that the state pension age could rise to 80 for those born in 2012.
One way to escape such a long working life is to build up savings to supplement private pensions until the state pension kicks in. But the rates paid by banks and building societies show most are doing little to encourage a savings habit in today’s toddlers.
To be interested, children need to be able to deposit irregular and small amounts themselves in a branch near home, preferably with a passbook so they can see their savings grow.
Yet the accounts that meet these criteria typically pay less than 1% in interest. Nationwide’s Smart instant access account for children up to the age of 17, for example, pays just 0.75% on balances of £1 or more.
Steve Blore, a spokesman for the Nationwide, says: “For those who want to pay in and withdraw regularly from a branch we have the Smart account, which pays 0.75%. Historically [the account] has paid 0.25% above the base rate, and this is still the case. Other products aimed at young people or at parents saving for young people have better rates in return for less access.”
Nationwide is not alone in offering a poor rate – the average instant-access children’s rate is 1.13%, according to product comparison site Moneynet. A spokesman for the site, Andrew Hagger, says: “It’s surprising that the banks aren’t more proactive in the junior savings market – after all, these are potentially the investors of tomorrow. It’s a market crying out for innovation and rates at a level that give youngsters a real incentive to save.” He suggests banks could cut the cost of paying higher rates to children by limiting the amount that could be saved each year.
Bath building society’s Futurebuilder account pays 5% gross on deposits up to £500, then 1.1% on anything over £500 to a maximum of £15,000. But the society has only four branches – all in Bath.
Northern Rock, which has 75 branches, pays 3% on balances of £1 or more in its Little Rock Access Saver passbook account. The Lloyds TSB Young Saver instant access account (more than 1,700 branches) also pays 3%. However, the parent must have a Lloyds current account.
Skipton building society (103 branches) pays 2.75% on its Leap (issue 2) account, but the rate drops by 0.5% after 12 months. And the Nationwide building society (700 branches) offers a 90-day notice account called Smart Saver which pays 2.1%. The account must be opened with £100.• Check the latest children’s savings rates here.