NS&I bumps up Junior Isa rate to 2.5pc – but eight providers pay more

National Savings & Investments has bumped up the rate of its Junior Isa by 0.25 percentage points to “make it more competitive” but it still fails to offer a top-five rate.

The Jisa, which was launched last August to replace NS&I’s Children’s Bonds, now offers a return of 2.5pc, one whole percentage point less than the top rate and at least 0.5 percentage points short of making the top five.

In fact, eight providers offer a better rate than NS&I.

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Coventry Building Society pays a market-leading rate of 3.5pc, Nationwide’s Smart Junior Isa offers 3.25pc and Tesco Bank pays 3.15pc.

Parents who deposit this year’s Jisa allowance of £4,128 into the Coventry account would earn just over £144 in a year compared to £103 with NS&I.

Non-Isa children’s savings accounts can offer higher returns but these are often restricted.

For example, Halifax’s regular saver pays 4.5pc for a year on monthly deposits between £10 and £100.  

After 12 months the account changes to a Young Saver and the rate drops to 2pc. Parents who pay in £100 a month could expect to earn just under £35 in a year. See here for more on children’s savings accounts.

Jisas are one of the most popular ways of saving for children: £858m was subscribed to Jisa accounts in 2016-17. Around 61pc of this was held in cash, despite the fact parents have up to 18 years to save on behalf of their offspring.

Yet experts say this is a mistake and higher returns could be earned if the cash was invested in stocks and shares Jisas.

Jisas are designed to be long-term savings vehicles. Funds held in a Jisa cannot be accessed until the child’s 18th birthday when the account becomes theirs and the money used as they like. 

In January, Telegraph Money revealedjust three of the cash versions of Junior Isas beat inflation. This is still the case.

There are a number of different platforms parents can use to open a stocks and shares Junior Isa, each applying its own set of fees. The funds you pick will come with a charge.

For investment ideas, see the top Jisa funds as chosen by the experts and bookmark Telegraph Money’s Jisa page for regular tips.