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NS&I raises rates on junior Isas

Parents are being encouraged to save more for their children’s future with National Savings & Investments increasing rates on junior cash Isas (Jisas) above pre-pandemic levels. 

The state-backed savings fund said on Tuesday that it had increased the rate for the tax-free children’s savings product from 2.7 per cent to 3.4 per cent. This puts NS&I at the top of the market for online Jisa accounts, beaten only by rates offered on rivals’ in-branch or postal Jisas. 

NS&I also announced the rate offered on its adult Isas would rise from 1.75 per cent to 2.15 per cent and it will also improve the prize fund rate for premium bonds to 3.15 per cent, representing its fourth increase in a year. 

“Today’s changes will provide a welcome boost for savers of all ages across the country, with more premium bonds prizes and some of the highest interest rates we’ve seen in over a decade.” said NS&I’s chief executive Ian Ackerley. 

Amid a general increase in interest rates, NS&I has moved to market itself more competitively, with an improved offer for Jisa holders that could appeal to rivals’ customers looking to switch to a better rate.

Jisas were launched in 2011 as a replacement for child trust funds, offering parents the ability to build a tax-free nest egg for their children before they turned 18, at which point accounts would convert to adult Isas.

Anyone can contribute to a Jisa, though an account must be opened by a parent or guardian and contributions cannot exceed a £9,000 tax-free limit each year. Children can hold one cash and one stocks and shares Jisa at a given time.

In 2019, NS&I increased returns on its cash Jisas to 3.25 per cent in an effort to encourage savings among young people, but cut rates to 1.5 per cent the following year, before lifting rates twice last year to 2.7 per cent at the close of 2022. 

Rachel Springall of comparison site Moneyfacts said that NS&I’s cash Jisa would appeal to individuals looking to open an account online. However, parents prepared to apply in a branch, by post or over the phone could access 3.8 per cent on an equivalent account with Coventry Building Society.

Savers wanting greater flexiblity on withdrawals may prefer non-Jisa children’s accounts, though they lose the tax advantages. Leeds building society offers 3.65 per cent on its easy-access child savings account.

Little over half of the £7bn held in Jisas between 2020 and 2021 was in cash, according to HM Revenue & Customs. This figure has slowly fallen as a proportion over time as more people invest in stocks and shares Isas.

“There are lots of people whose junior Isas or child trust funds are sitting at worse rates,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown, noting that balances could be transferred.

Financial records suggest that even though markets fluctuate over time, a stocks and shares Jisa will tend to outperform a cash Jisa, with more chance of beating inflation.

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