Savings accounts: Five things you need to know about interest rates

Interest rates on easy access accounts have been slashed by more than a third since 2013

Grandparents can give money to grandchildren with no tax implications (Corbis)

What’s wrong with savings accounts?

The big high-street banks have been playing Scrooge with our savings, says Susan Hannums, of Savings Champion. Her evidence? The fact that interest rates on easy access accounts have been slashed by more than a third since 2013.

That doesn’t sound terribly good. Is there any good news?

Yes, children’s accounts have fared far better, with an average loss of just 6 per cent of interest paid over the same period. Back in 2013, the average rate for the top five children’s easy access accounts was 2.67 per cent, while adults got an average 2.25 per cent on their equivalent accounts. Fast forward to today and children see an average rate of 2.52 per cent, while adults have seen a much more significant fall to 1.44 per cent.

So kids’ savings accounts are still paying reasonable rates?

Yes. So encouraging them to open a savings account with their Christmas money will be a good idea. Because they will be earning some interest they’ll learn some important lessons, such as the value of saving. “It’s encouraging that children’s savings accounts have remained relatively unscathed in the downturn as getting into the savings habit at a young age is the perfect start to a successful financial future and understanding the value of money,” pointed out Ms Hannums.

Are children’s accounts really that much better than adults’?

Here’s an example which illustrates the point. If you put £100 a month into the typical children’s savings account for 18 years at 2.52 per cent interest, you’d end up with a lump sum of £27,279. An adult account paying 1.44 per cent for the same 18 years would grow to £24,649 – a difference of £2,630.

Anything else I should know?

Grandparents can give money to grandchildren with no tax implications, and it may even help to reduce their inheritance tax liability.