Julian Knight: Hooray for junior ISAs, but they won't help cash in moribund Child Trust Funds
Sunday 24 July 2011
1.01 per cent – that is the average amount a children's savings account is paying, according to Which?.
And child trust funds, much heralded as the long-term savings vehicle for hundreds of thousands of British kids, are also paying a pitiful 1.1 per cent on average, about 4 per cent below the rate of inflation.
CTFs are now closed to new money – since being abolished by the coalition – so you can bet that the rates these accounts will pay will fall further. It's one of the unwritten laws of personal finance that once an account closes to new money, it becomes an instant rate backwater. Suffer the little children indeed.
From November there will be a new option – the junior individual savings account. In essence, this is an extension of the ISA system, allowing children and their parents to shelter savings from the taxman. The details of the junior ISA are likely to be announced this week by Mark Hoban, Financial Secretary to the Treasury, and this could include a raising of the proposed limit that can be saved each year from £3,000 to somewhere around £3,600.
This is likely to become a very competitive area very fast, as the three magic letters ISA is likely to guarantee public goodwill. But if you want to transfer money from a CTF, then you're set to be disappointed, as under present plans such a move is banned – which seems very strange because with junior ISAs, like CTFs, the cash is locked away until adulthood. Banning transfers is likely to condemn accountholders to years of seeing part of their nest egg underperform.
What would a 'north euro' mean for you?
The euro's demise is still off the table as far as the eurozone ruling class is concerned, and much of the talk is of closer integration – in effect ending a state's ability to spend as it chooses. Such a choice combined with a new euro bond would probably do the trick, but will the populations stand for it? Only a minority are in favour of a United States of Europe and this crisis is seeing their number dwindle.
Another option is the break-up of the euro – not into 17 different currencies but into a north euro and the rest (the so-called Club Med countries). What would this mean for you as a British saver and investor?
Well, once the dust settled, a north euro would rise against the pound. Since the crunch, the euro, pound and dollar have been competing in a bizarre beauty contest – all are mangy dogs but which one has fewer fleas? A euro without Club Med will receive an instant delousing.
For investors with money in, say, Germany or France, returns will get an immediate lift. Savers may be helped by money naturally flowing to the north euro, which will mean interest rates will have to rise here to attract the capital we need. Savings rates would go up, but borrowers on flexible-rate mortgages will find their repayments rising.
A north euro could be good for savers and poor for borrowers, but this doesn't account for the likely fall-out from European and UK banks realising that loans made to Club Med aren't going to be paid back anytime soon. And it's that part of the equation which is frightening, echoing the collapse of Lehman.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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