Simon Read: Tampering with kids' savings is leaving parents confused
Saturday 30 October 2010
Parents got a fillip this week with the news that the Government is launching a Junior ISA next year. The new account – which will be available from next Autumn – will allow parents, grandparents and family friends to stash cash away for kids in a tax-free environment. The details of the accounts, such as how much you'll be able to put in it, are yet to be announced, but I suspect they'll be similar to the currently available Child Trust Funds, into which you can put up to £1,200 each year.
In fact the only difference between the new savings scheme and the Child Trust Fund is likely to be that there is no state contribution. As you probably recall, CTFs were introduced by the last Labour government to encourage children to get into the savings habit, and each child was given £250 to start them off. One of the Coalition Government's first moves when they came to power was to scrap CTFs from next January, so this week's announcement is a little surprising.
It was obvious that the CTFs would go as they cost the Government half a billion a year and we knew the Coalition would be looking for easy ways to make savings. There was also the fact that the accounts were introduced by Labour, which is reason enough for some rival politicians to applaud their departure. But the two separate decisions about, effectively, the same subject means there will be a gap of at least six months between the end of CTFs and the introduction of Junior ISAs.
The most sensible approach would have been to have one seamlessly replace the other but this government doesn't seem to be capable of joined-up thinking and making logical decisions. Don't get me wrong, I'm happy to give a warm welcome to Junior ISAs, subject to seeing their full details. But I wish the present government would think things through before making their swanky announcements. Their haste to scrap and cut is leading to confusion and potentially problems for parents simply keen to save for their children.
Bank bashing has been back in the news this week. There was the usual tut-tutting from consumer groups (more of which later), but the biggest criticism came from a judge who branded Lloyds Banking Group a "disgrace" after the bank simply sat by and watched as a 92-year-old customer had his savings siphoned off by fraudsters.
The pensioner was the victim of rogue builders who charged him £18,000 for some work on his home and then, once he had paid up, demanded the same amount again from him. Judge William Kennedy, sitting at Snaresbrook Crown Court, said the bank should have monitored the payments, which were the pensioner's total life savings.
"Lloyds Bank owed a duty of care," the judge said. "I regard it as quite extraordinary that the bank seems not to be prepared to compensate this elderly gentleman who placed his trust in them to manage his money."
But the judge shouldn't have been surprised. Most of us know from bitter experience that banks don't care about us. They simply want to take our money. The latest evidence of that came in a Which? report published this week that calculated that we collectively lose £12bn a year in lost interest by keeping our savings in low-paying accounts.
The simple solution is to switch our cash to better accounts, but the problem is that so many people still seem to trust the banks with their money. Time and time again people are suckered into opening high-paying accounts and leaving cash in them. It's a traditional bank tactic. But once it's got your cash, banks like to sneakily reduce rates until the interest earned is practically nothing. In fact Which? uncovered two accounts which pay just 0.01 per cent – a criminally low rate that means you'd get just 10p a year for every £1,000 you kept in the accounts.
That's unacceptable, and it's time the banks were forced to ensure our savings earn the best interest, not a pathetic rate.
People power is working. The Bank of England has been forced to listen to our demands for more fivers in our change and has promised to introduce an extra 400 million £5 notes into circulation by 2012. There will also be more cashpoints dispensing fivers so that, by next Easter, the number available through ATMs should increase fivefold.
Currently there are less than half as many fivers in circulation than tenners – 249 million compared to 640 million, to be exact. The situation has led to a frustrating dearth of fivers. I've often had to proffer a tenner for a newspaper – even for the 20p i – with an apologetic shrug to the shopkeeper. The situation invariably then gets worse when the shopkeeper apologises back and hands over a fistful of pound coins as change. Having to walk away with a pocketful of clinking coins is – let's face it – uncomfortable and embarrassing.
Part of the problem is that fivers don't last very long. Because they are so popular they get a lot of use and get damaged and unusable relatively quickly. In fact the average fiver lasts less than a year, while a £50 note, in comparison, can last for five years or more. So three cheers to the Bank of England doing something that we want for a change and producing more fivers.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
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