NS&I raises bets on junior Isas

Parents are being encouraged to save more for their children’s future as National Savings & Investments raises rates on junior cash isas (jisa) above pre-pandemic levels.

The state-backed savings fund said on Tuesday that it had increased the rate for tax-free children’s savings products from 2.7% to 3.4%. This puts NS&I at the top of the online Jisa account market, second only to the rates offered on competitors’ intra-branch or email Jisa accounts.

NS&I also announced that the rate offered to its adult Isas will rise from 1.75% to 2.15% and will also raise the prize fund rate for premium bonds to 3.15%, representing the fourth increase in a year.

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

On the back of a general increase in interest rates, NS&I has moved into a more competitive market with an improved offer for JISA holders that may appeal to competitors’ customers looking to upgrade to a better rate.

Jisas were launched in 2011 as a replacement for child trust funds, offering parents the opportunity to create tax-free savings for their children before they turn 18, after which the accounts will be converted to adult Isa.

Anyone can contribute to Jisa, although the account must be opened by a parent or guardian and contributions cannot exceed the tax-free limit of £9,000 per annum. Children can hold one cash and one Jisa shares and shares at a time.

In 2019, NS&I increased the yield on its Jisas cash to 3.25% to encourage savings among young people, but cut rates to 1.5% next year and then raised rates twice last year to 2.7% at the end of 2022 of the year. .

Rachel Springall of comparison site Moneyfacts said NS&I Jisa cash would appeal to people looking to open an account online. However, parents willing to apply at the branch, by mail, or by phone could access 3.8% on an equivalent account with the Coventry Building Society.

Depositors who want more flexibility with their withdrawals may prefer non-Jisa child accounts, although they lose the tax advantage. Leeds Building Society is offering 3.65% on an easily accessible children’s savings account.

Slightly more than half of the £7 billion held at Jisas between 2020 and 2021 was in cash, according to HM Revenue & Customs. This figure gradually decreased over time as more people invested in Isas shares and shares.

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

Financial reports show that while markets fluctuate over time, Jisa shares and shares will tend to outperform Jisa cash, with a greater chance of beating inflation.