Banks start to pull back from the playground

Britain's banks and building societies usually fall over themselves to promote children's accounts in the hope of netting savers at an early age.

So the rate cut on Alliance & Leicester's (A&L's) FirstSaver children's account from 5.25 to 3.65 per cent, which took effect on Friday, bucks the trend.

Take-up of this passbook-based account, which was closed to new business in January, has been low, a spokeswoman said. She added that the bank would no longer be competing in the children's savings market.

Kids (or rather their parents) with money in this account should look at their options. Without an incentive to be competitive, A&L is unlikely to carry on rewarding these savers.

Its decision to abandon the headline-grabbing 5.25 per cent rate raised an eyebrow at Nationwide building society. "Attracting [savers] with high rates that are subsequently cut could be regarded as a cynical ploy," said spokesman Steve Clode.

He reported lively demand for children's accounts, particularly in the summer months as withdrawals are made for the school holidays.

A&L is not the only one to penalise young savers. Last month, those with more than £5,000 in the HSBC high-interest children's savings account saw their rate cut by 0.15 percentage points to 2.85 per cent. And Birmingham Midshires recently cut the rate on its children's deal by 0.24 percentage points - to 3.81 per cent. All this when the Bank of England base rate hasn't moved since August 2004.

However, there's no shortage of rival offers with competitive rates. Chelsea building society pays 5.1 per cent on its Ready Steady Save account, and Halifax 5.05 per cent on Save4It.

You can earn 5.35 per cent with Saffron Walden's instant access Ladybird account, and 5.75 per cent on Scarborough building society's Children's Savings Bond - although you have to tie up your money for three years with the latter.

Alternatively, the Children's Regular Saver at the Halifax pays 10 per cent on monthly contributions of between £10 and £100 a month.

Make sure you check the rate on your child's savings account regularly.

If you find your bank constantly short-changes you, transfer the money to a more competitive deal elsewhere. If it's in a notice account, watch out for any penalties you may have to pay for switching.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

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