Junior ISA shunned by banks

With only days to go before the launch of the tax-free Junior ISA, the Coalition's replacement for the Child Trust Fund, High Street banks seem completely underwhelmed.

RBS will have one available by the end of November. HSBC is "building" its version. Maybe it'll be ready by the end of the year.

Santander has nothing in place: it's "considering options". And Barclays has "nothing lined up".

Why? If these banks thought the product would be a big seller, you'd have thought they would have something in place for zero-hour.

So probably they don't think huge sums are likely to be invested.

Unlike Child Trust Funds, which were turbo-charged with £250 from the taxpayer, there is no free money on offer to tempt parents to open the new ISAs.

Of the big players, only Nationwide Building Society is a contender. Its Junior Cash ISA, on offer from 1st November, will pay 3% including a bonus for the first year.


UPDATE: Halifax and Bank of Scotland say they will be offering a Junior Stocks and Shares ISA in November 2011, likely to be later in the month.
 

Who is the Junior ISA for?

The government is suggesting that 6 million children will be able to get the new tax-free Junior ISA from the launch expected at the beginning of November, then an extra 800,000 babies will "benefit" each year.

But will they really? It's a great idea to save for the children, particularly with all the worries about paying for university. Hence this replacement for Labour's Child Trust Fund.

However, there are several reasons why take-up could be disappointing.

*Families are struggling to find money to save.

*There is no taxpayer contribution to kick-start the plans.

*The money will still be locked in. Parents won't be able to get it back if they need it.

The first two points are fairly obvious. Whatever you think about the taxpayer stumping up hundreds of pounds for each Child Trust Fund, it did encourage parents to engage with the idea.

Around one in five families added their own contributions. It might be optimistic to think that the same proportion will be tempted by the Junior ISA.

The last point, though, could be very significant. Parents are unlikely to identify any major difference between the Junior ISA and other forms of saving which are open to them, except that they are waving goodbye to their money forever.

Remember that only a third of Britons save regularly, according to the Halifax. And just under a third have no savings at all to fall back on or less than £249 set aside as a financial safety net.

So you are already talking about a minority who might be tempted by the Junior ISA.

Now consider what parents might be doing with their money, after meeting mortgage and other debt repayments and settling the monthly bills.

First up might be pension contributions. We don't want to be a burden on the young later on, do we?

Then there are straightforward ISAs, the parents' own Individual Savings Accounts. Cash ISAs for the short term and, possibly, share ISAs for the longer term.

Parents can keep savings in their own Cash ISAs, up to £5,340 each year for each adult (from 6th April), accumulating year after year. And, crucially, they can take the money out if they need it. Or they can spend it on the kids.

So the Junior ISA may only be attractive once a couple is putting aside more than their joint annual entitlement of £21,360 in their own ISAs -- and that's on top of any pension contributions.

Which feels like a small proportion of the population.

It's true that some parents really do value the fact that the money is locked-in and will be safe for the children. But many could steer clear of Junior ISAs.

Savings cash for children in care

Thousands of children in care will be given cash to put in tax-free savings accounts.

The Chancellor, George Osborne, said the government would spend around £5m a year on the scheme.

"We are going to provide the funding to make this a reality for looked-after children," he told MPs.

It has been suggested that the children could be given up to £250 in their accounts to start with, topped up with £100 a year thereafter, though the Treasury has yet to say how much would come from the taxpayer.

Charities had pointed out that children in care would be left high and dry by the abolition of Labour's Child Trust Funds, which included a contribution from the government for every child.

Contributions to the Coalition's replacement, the Junior ISA, will have to come entirely from family and friends. So children in care would have struggled to take advantage.

Barnardo's has been campaigning for a solution, along with Action for Children.

"This modest investment into savings accounts for looked after children will help these young people achieve their goals and avoid negative outcomes such as homelessness or falling into cycles of debt," said Barnado's chief executive Anne Marie Carrie.

The full details of the new scheme will be worked out with the help of the charities and other concerned groups.

One possibility is that annual payments into the plans could come from charitable trusts.

"We've already contributed nearly £400,000 to Child Trust Funds for children in care, at an average of £300 a year per child," explained Gavin Oldham from the Share Foundation.

"We want to build a voluntary flow of contributions straight though into these accounts," he added.

There are 64,000 children in care, but it is likely that only those entering care would be eligible for the accounts.

Those who have Child Trust Funds from earlier years could receive extra contributions as part of the new scheme.