Money Insider: Junior ISA offers best incentive for children to save

We often hear how important it is to put money aside and to have some savings behind you, but when you take a look at the rates of interest on offer for many children's accounts, it's easy to understand why some parents just don't bother.

Much of the UK was caught up in a decade-long credit binge before the crunch took hold, and it's only in the past 18 months that we've seen signs that people are starting to wean themselves off their reliance on credit.

If we want our children to grow up building their own nest eggs and to appreciate the value of money rather than reaching for the plastic when they turn 18, banks and building societies need to offer better rates and incentives to encourage parents and their youngsters to save regularly.

Those providers paying a derisory return of less than £5 a year on a £1,000 savings balance simply don't deserve to see the younger generation using their branches.

With the base rate still languishing at a record low it's not surprising that rates aren't that brilliant, but with 30 per cent of accounts offering a pitiful 0.75 per cent or less on balances of £1,000, there's plenty more that could be done.

There is some better news when it comes to the Junior ISA (JISA), where the average interest rate is 2.7 per cent, more than double the meagre 1.32 per cent being paid on standard children's savings accounts.

Until now virtually all the providers offering Junior ISAs were building societies, but this week we saw the first involvement from the major high street banks with Lloyds TSB launching its own JISA paying 3 per cent.

It's important that children's savings accounts are given a higher profile if the nation is to rediscover the savings habit, and I hope the other big banks will respond with Junior ISA offerings of their own before too long.

As with the adult savings market some of the highest rates are offered for Regular Savings accounts.

The terms and conditions of this type of account tend to discourage withdrawals but help to instil the discipline to save regularly, with the carrot of fixed rates as high as 6 per cent. That is currently on offer from Halifax, payable for those who can salt away at least £10 a month for 12 months.

Unfortunately there are only half a dozen providers currently offering such accounts for children, another area that is crying out for a bit more innovation and competition from the rest of the banks.

It's time that providers took a longer- term view and a serious look at the range of savings deals they offer for the under-16s market, because at present, many are simply not fit for purpose.

Generous rewards for good behaviour

Broadly speaking, credit card holders in the UK fall into two categories, depending on the way they've conducted their financial affairs.

For people with an excellent track record and a blemish-free credit history there is a plethora of interest-free balance transfer deals lasting almost two years and an abundance of ways to earn cash back or reward points.

If, on the other hand, you're struggling to keep your plastic indebtedness in check and have exceeded your limit or missed a couple of payments, your choice of plastic will be severely limited and the few cards available will charge you upwards of 25 per cent APR.

For someone with a pristine credit record, balance transfers are an excellent opportunity to make your credit card work for you. For example, £2,500 transferred to the Barclaycard Platinum card will cost just £72.50 for the one off transfer fee (2.9 per cent), whereas if you borrowed this sum for 22 months at 18.4 per cent APR, your interest bill would be in excess of £710.

If you've not got a balance to switch but are disciplined enough to repay your statement balance in full every month, the Santander 123 cashback credit card gives you the chance to earn unlimited cash back of between 1 and 3 per cent of your purchases.

Andrew Hagger – Moneynet.co.uk