Nationwide has recently withdrawn its Smart Junior Isa account from the market, replacing it with a new children’s savings account – the Future Saver.
This move comes at a time when the number of people paying into cash Isas is declining, and the rates offered by most adult cash Isas are being eclipsed by savings accounts.
Which? reveals why Britain’s biggest building society has scrapped its Junior Isa, whether other banks are likely to follow and where to find the best accounts to save for your children.
Why has Nationwide scrapped its Junior Isa account?
First introduced in 2011, there have always been far fewer Junior cash Isas subscribed to than adult cash Isas, which is to be expected.
According to HMRC’s most recent Isa statistics, in 2017/18, 636,000 Junior cash Isas were subscribed to, compared to nearly 8m adult cash Isas.
But the difference is that Junior cash Isa numbers have been gradually increasing – the 2017/18 figure is up 47,000 since 2016/17.
So, the fact that Nationwide has decided to scrap its account comes a surprise
Nationwide’s Smart Junior Isa account paid 3.25% AER on minimum initial deposits of £1. The usual Junior Isa rules and allowances applied, and it was the third highest paying Isa in our list of the best accounts.
So, why has it been axed?
A Nationwide spokesperson told us that the decision was a result of a customer survey, which revealed that people wanted more control over the money held in the Junior Isa.
Some felt that they would like their children to be able to access the money before the turned 18; some worried that 18 was too young and their child was likely to fritter their money away; some specifically wanted to be able to safeguard the money to only be spent on a first car or deposit for a house.
Some parents also wanted to have the option of accessing the money in case of emergencies.
Due to its restrictions, none of this was possible with a Junior Isa account – but is offered by the new Nationwide Future Saver.
Nationwide has not made much of a fanfare about its Junior Isa account being canned – in fact, go on the building society’s website and you’ll only see that the Isa has vanished, and instead there’s advertising for the new children’s savings account that’s been brought in to replace it.
How does the new Nationwide account measure up?
Nationwide has replaced its Junior Isa with a new savings account. The Future Saver is a children’s savings account offering 3.50% AER if the child’s parents hold a main current account with Nationwide; 2.50% AER if they don’t.
It can be opened for children from birth up to the age of 15, and the terms are written in trust, so you can decide the age when your child can take over ownership of the money – unlike a Junior Isa which has strict rules of the child having to wait until they’re 18.
You can pay in up to £5,000 per account year – a fair bit more than the annual Junior Isa limit of £4,260.
What’s more, you can access the money saved in the savings account – which isn’t possible in a Junior Isa.
The crucial thing to remember in this case, though, is that you should only make a withdrawal once each account year – more than that will result in the rate being reduced to 0.5% AER.
The table below shows the top-rate children’s savings accounts currently on the market.
|Halifax Kids’ Monthly Saver (0-15yrs)||4.5% (variable)||Must save £10-£100 per month. No withdrawals allowed.|
|Saffron Building Society Children’s Regular Saver (0-15yrs)||4% (fixed)||Must save £5-£100 per month.|
|Barclays Children’s Regular Saver (0-17yrs)||3.5% (fixed)||Must save £5-£100 per month. Rate drops to 1.51% AER in any month you make a withdrawal.|
These accounts all require regular savings to be made, and while the interest rates on offer are high, you’ll only be able to deposit a maximum of £1,200 a year if you pay in the maximum £100 a month, so there’ll be less money in the account to grow.
What’s more, with Halifax you have no option to make any withdrawals, and with Barclays you’re always penalised for them.
Nationwide’s account matches the Barclays rate, but only if you’re an existing customer.
- Find out more: Best children’s savings accounts
As for Junior Isas, the table below shows the top rates.
|Account||AER||Minimum initial deposit|
|Coventry Building Society Junior Cash Isa||3.60%||£1|
|Danske Bank Junior Cash Isa||3.45%||£25|
|TSB Junior Cash Isa||3.25%||£1|
You cannot make any withdrawals from a Junior Isa, and the control of the money is automatically handed over to the child when they turn 18.
Rates are fixed, and you can pay in a maximum of £4,260 in each tax year. This amount is not part of your own Isa allowance.
- Find out more: Best Junior cash Isas
What about the tax implications of using a savings account?
The downturn of the cash Isa may have begun with the introduction of the personal savings allowance in April 2016.
The tax-free allowance means that basic-rate taxpayers can make up to £1,000 in savings interest without paying any tax. Higher-rate taxpayers can earn £500 on their savings before tax, while additional-rate taxpayers must still pay tax on all savings income.
When it comes to savings accounts for low earners – a category children fall under as they don’t work – you can combine the personal savings allowance with the savings starting rate – where you can earn up to £5,000 interest-free on savings when you earn less than the personal allowance of £11,850.
As far as children are concerned, it is unlikely they’d have to pay any tax on their savings while they still benefit from the higher interest rates offered by children’s savings accounts. But, unlike with Junior Isas, it’s not guaranteed.
What’s more, parents should also make sure they take the ‘£100 rule’ into account when depositing money into a children’s savings account.
The rule is that if you, as a parent, step-parent or guardian, give your child money and it makes more than £100 in interest in a year (or £200 if both parents give money), then all of this income – not just the income over £100 – will be taxed as if it was your own income.
This £100 limit doesn’t apply to monetary gifts from other family members – so grandparents, aunties, uncles or other friends won’t have to worry.
Money paid into a Junior Isa is tax-free, and therefore doesn’t have this problem.
Nationwide told us its research suggested that the majority of its customers won’t be affected by any tax implications of using a children’s savings account, and it depends on the parents’ income tax band.
But if a parent paid in the maximum £5,000 into the new Future Saver, earning the top 3.5% rate, they’d generate £175 in annual interest – risking a chunk being taken by tax office.
- Find out more: Children and income tax
What happens to customers with a Nationwide Junior Isa?
Many people who had previously opened the Nationwide Junior Isa might well be wondering what will happen to the savings provisions they’d made for their child.
We were told that there will be no change for existing customers who hold the Junior Isa – if you want to continue using the product for your child, you can keep saving into it as normal and you can keep earning annual interest of 3.25%.
The product is only closed to new customers, who will no longer be able to open a Junior Isa with Nationwide.
Is this the beginning of other Isas getting cut?
Despite the downturn in the number of people using cash Isas, Nationwide told us that it is still ‘really supportive’ of Isas in general, and there are no current plans to scrap any of the many adult cash Isa options on offer.
We spoke to some of the other providers of the best-paying Junior Isas about their future plans for these accounts.
Here’s the good news – Santander, Coventry Building Society and Tesco Bank all confirmed that their Junior Isas aren’t going anywhere.
Update: Halifax has also confirmed that it has no plans to withdraw its Junior Isa.
- Find out more: Are Isas still worthwhile?