Money news, advice and predictions for savers and spenders.
By Jeremy Gates
From the start of September, every child in Britain reaching their seventh birthday can look forward to a second £250 voucher as a Government gift towards a lump sum for when they reach adulthood.
Gordon Brown, when he was Chancellor of the Exchequer, unveiled the Child Trust Fund (CTF) as a new 'Savings Gateway' for all children born on or after September 1, 2002.
If everybody has a CTF, then nobody needs to start their adult lives with nothing at all. Already, 4.4 million CTF accounts hold more than £2 billion.
Every qualifying child got a £250 Government voucher at birth, with a second voucher at seven also going into the lump sum accessible only on their 18th birthday. Invested either in a savings account or in shares through managed funds, the money grows free of tax.
But as CTFs enter a new phase, financial data website Moneyfacts.co.uk has been analysing how they have fared so far.
It's grim reading for Little Johnnies and Joannas dreaming of splashing the cash at 18.
So far as cash accounts are concerned, Moneyfacts says £250 invested with Hanley Economic Building Society - consistently among the most generous and currently paying 5% on CTF accounts - has grown in four years to just over £327.
Nationwide, paying 2.10% (1% bonus) on CTFs, has reached £305.80. Better not ask about Monmouthshire BS, meanest of the lot with a CTF paying 0.5%!
Some share-based CTFs have fared even worse. While £250 in Gartmore European Selected Opportunities has grown to £347, even the well-regarded Invesco Perpetual UK Smaller Companies Fund has only got to £303, while a UBS fund managed to lose £30, falling back to £220.
Among investment trusts, Pacific Assets is the star at £399.88. But IRP Property Investments, hit by plunging values of commercial buildings, has sunk 22% to £194.
Of course, there are years to go before the first CTFs mature in 2020, and we have lived through dramatic bank collapses which will probably never be repeated in our lifetimes.
Equity investment, we are always assured, is essentially for the long-term.
Yet unless CTFs are topped up on a fairly regular basis, it seems at this point that they might struggle to have much impact on the lives of most 18-year-olds.
When they began, the movement of share prices in the previous 18 years suggested that CTFs topped up by the annual maximum (£1,200) each year could exceed £30,000 at 18.
That really would be life-transforming, in paying for a degree course or perhaps a deposit for a first home.
But plenty of financial institutions were wary from the beginning. Fund managers have tended to steer clear, while bigger building societies and banks have tended to ignore CTFs altogether.
Perhaps they were right. Figures suggest that 75% of CTFs opened so far - some of them by the Inland Revenue if parents failed to act within a specified period - include only an original voucher.
Yet if our society is ever to regain the thriftier attitudes of yesteryear, which is apparently necessary to get through the credit crunch, the change has probably got to start with young people.
That's why David White, chief executive of The Children's Mutual, a long-established friendly society which he reshaped to pioneer CTFs, is so strongly committed to the concept.
"Our research shows that, despite recession, people still feel that saving for their children to give them the best future they can is very important," he says.
"We have opened a record number of CTFs every month so far this year."
Of 700,000 CTFs with The Children's Mutual, around half haven't been topped up at all. Of the rest, the average additional saving is £24 per month - likely, on current trends, to produce a lump sum of £9,750 at age 18.
"Where there is additional saving for a child, the average is £24 per month - 60% higher than the £15 saved before CTFs came in," White says.
"We have also seen a wider benefits. Since the recession started, parents have talked about money to children more than ever before. Three out of five parents are prepared to say 'no' to requests to spend on things like video games.
"More seven-year-olds have become aware of saving than before. We could have a generation of 18-year-olds, in 11 years' time, aware of the benefits of saving much earlier in their lives."
The Children's Mutual acknowledges that CTF gains so far are marginal: it thinks the total sum at age 18 from two Government vouchers worth £500 could be £862 in a savings account, and £1,185 in a share-based account.
Set this against the average graduate debt running at £20,000 today, and it becomes obvious that a CTF only assumes real significance with the boost of regular top-ups.
Kevin Mountford at www.Moneysupermarket.com believes that people should take advantage of this "free money".
"Savings rates on CTFs, which tend to be offered by the regional building societies keen to attract younger customers, can be a big improvement on Bank base rate at 0.5%," he says.
"We need to create a culture in which people start to save again for things, where parents and grandparents give one present at Christmas and put the rest in cash for a savings account.
"Over the long-term, we know equities tend to outperform cash. If shares manage a gradual recovery over the next decade, it won't take many sacrifices from families to build a lump sum worth £5,000 at age 18 - which could change the way young people go into adulthood."
Alongside the CTF, parents and grandparents might want to build a savings plan linked to shares which children can access before they are 18.
Several investment trusts have plans in place, including Scottish Investment Trust (SIT) which launched Stockplan: A Flying Start in 2004 to invest in global markets, with low charges.
Minimum monthly payments of £25 can be stopped and restarted at any time, and occasional lump sums (minimum £250) also invested. Withdrawals, at any time, cost £10 plus VAT, with no minimum withdrawal amount.
Although SIT suffered a 22.7% drop in asset value last year, Stockplan is geared, like CTFs, to produce a lump sum which can be used towards the costs of getting a degree, or even to fund a gap year.
:: Information: Children's Mutual (0845 077 1899 and www.thechildrensmutual.co.uk); Scottish Investment Trust: (0800 424422 and www.sit.co.uk).
Poundnotes
:: Although fixed and capped rates accounted for a record 84% of mortgages in four months to the end of June, higher fixes in recent weeks have since seen the proportion fall back to 56%.3%, with variable rates more than doubling to take 34.7% of the market, says Ray Boulger at leading brokers John Charcol.
"Borrowers taking out large loans are much more likely to choose a variable rate, usually a tracker, and many borrowers want the flexibility to overpay more than 10% of their loan per year, which is usually the maximum permitted on a fixed-rate loan without incurring a charge," he says.
"It looks certain that fixed-rate loans will take less than half the market in August, both by case number and volume, which reflects changing views on how long interest rates are likely to stay low.
"I suspect the Bank rate will stay at 0.5% until the General Election, and they could possibly remain that low until the end of 2010."
:: Sky-high ticket prices to watch Premier League matches and even lower divisions are playing havoc with football fans' finances, new research from Virgin Money shows.
Its Football Fans Inflation Index reveals that one in every five fans has to borrow money as a direct result of supporting their team. Season-ticket holders are most in the red - 27% are borrowing, with over 22% owing £1,000-plus.
The Virgin index, which has tracked the cost of being a fan since January 2006, says costs for fans are up 15.1% year-on-year, and by 29.6% since October 2006.
"If fans are going to pay to follow the team, they may as well ensure that they aren't paying interest on money they've borrowed by transferring their balances onto a 0% credit card," says Virgin Money's Grant Bather.
In the league table of football-related borrowings, Arsenal are on top at an average £1,284, followed by Manchester United (£1,231), Liverpool (£1,155), Tottenham (£1,140) and Chelsea (£1,031).
The least indebted fans are at Wigan (£500), Burnley (£513) and Manchester City (£529).
:: There's some great deals around for savers prepared to do their homework: fixes on Barnsley BS Online Bonds include 5.40% gross over five years, 5.15% over four and 5.00% over three, on deposits of £100 upwards. Details on www.barnsley-bs.co.uk.
Meanwhile Santander launches a new two-year fixed-rate bond from September 1, promising 4.20% gross for two years on minimum £10,000 deposits and available through Abbey, Alliance & Leicester and Bradford & Bingley.
Early closure of the account is permitted, subject to a loss of 120 days' interest.
Details through branches, or online at www.abbey.com, www.bradford-bingley.co.uk, or at 0800 234 6065.
:: Over-50s savers have become a prime target for building societies because many of them are flush with cash.
However, Kevin Mountford, head of banking at Moneysupermarket.com, reckons these "silver savers" have been penalised more than many others in the last year as the best rate available has dropped by 4.15% in a year, compared to a drop of 3.25% for easy-access accounts obtainable by all.
"Once upon a time, over-50s products were aimed at branch-based users and as such there was some justification that rates may be a little off the pace," Mountford says.
"Now that we see more and more of this age group seeking direct online products, there's no reason why they shouldn't be enjoying some of the best rates in the market.
"Savers should always shop around and avoid being seduced by targeted products that may not offer the best rates."
Mountford says that the top over-50s easy-access account, from Saffron BS, pays 2.30% on a £1,000 deposit, while the top easy-access savings account - Coventry BS First Class Postal Account - pays 3.30% on a £1,000 deposit.
:: High-five savers:
Phone No Rate Account Period Deposit Interest paid
West Bromwich BS www.westbrom.co.uk 5.45% (F) E Bond 32 31/07/14 £5,000 Yly
Barnsley BS www.barnsley-bs.co.uk 5.40% (F) Online Bond 30/09/14 £100 Yly
Aldermore 01372 736700 5.40% (F) Fixed Rate Bond Five Year Bond (P) £10,000 Qly
Manchester BS 0161 923 8015 3.26% Premier ISA 45 Issue 1 45 Days £1,000 Yly
Nottingham BS 0845 155 6330 3.15% Postal Access 50 50 Day (P) £1,000 Yly
:: Top-five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC (Rem) 0800 494999 2.49% discounted for two years 75% £249 Yes
First Direct (Rem) 0845 610 0100 3.09% variable for term 80% £999 Yes
Co-operative Bank 0800 633 5286 3.24% to 30/09/12 75% £995 Yes
ING Direct (UK) 0845 603 8888 3.29% for term 75% £999 Yes
Loughborough BS (FTB) 01509 610707 3.39% for two years 80% £449 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
