The average Child Trust Fund interest rate is falling, despite banks and building societies trying to weather the credit crisis by cutting back its reliance on lending and building up savings deposits.
Parents have seen their children's Child Trust Fund
(CFT) return 0.21 per cent less in the last year, according to MoneyExpert.com, despite the savings price war which is currently being waged among financial service providers.
The average rate on a CFT is now 6.29 per cent, compared with 6.5 per cent in June last year, and the gap between the best and worst rate have widened from 2.05 per cent in 2007 to 3.25 per cent today. The best rate, 7.75, comes from Hanley Economic Building Society and the worst comes from Abbey at 4.5 per cent.
"For savers the only way is up in the credit crunch unless you're a parent with a cash CTF," said Sean Gardner, director at MoneyExpert.com. "The fact that average rates on cash CTFs has fallen in the past year is really disappointing as these accounts are genuinely long-term with children unable to access the cash until they are 18. Firms could afford to offer better deals.
"That said the biggest shock is the gap between the best and worst. Any parent who is receiving a lower rate than the average should switch or start thinking up a really good excuse to explain where it all went wrong when their children are 18."
This trend is bucking the effects of the credit crunch which has seen banks and building societies increasing their interest rates in order to make up the cash that they can no longer borrow from the wholesale money markets.
MoneyExpert's research also shows that not only has the average return on Child Trust Funds
fallen, but the number of providers has dropped to 11 from 13 last year.
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