NS&I is finally increasing the interest rates on both its Junior Isa and Direct Isa.
Interest rates paid on the Junior Isa will increase by 75 basis points, from 2.5 per cent to 3.25 per cent.
In addition, the interest rate paid on the Direct Isa will increase by 15 basis points, from 0.75 per cent to 0.9 per cent.
Jill Waters, retail director of NS&I, said: "We want to ensure that NS&I is front of mind to our customers when making savings decisions, and these improved interest rates ensure that we are providing a fair rate, while guaranteeing that their money is 100 per cent secure.
"Our Junior Isa offer gives parents and guardians a simple and straightforward way to invest for their children, at a competitive rate of interest. This will help their children build a nest egg that they can then take forward into adulthood.”
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said as NS&I is backed by the government, when it sets rates it must try to offer a reasonable deal for savers, while at the same time not overshooting its funding target or upsetting taxpayers by being too generous.
In recent years, she said, this had meant its Direct Isa had been somewhat disappointing.
Ms Coles said: "Among its most dismal days was after the last Bank of England rate rise in August 2018, when instead of raising its rate in the following month, it actually fell from 1 per cent to 0.75 per cent. The most recent rise, to 0.9 per cent does little to restore much enthusiasm.
"The Junior Isa, by contrast, has seen a big boost from 2.5 per cent to 3.25 per cent - taking it into the top three highest rates on offer in the Junior Isa market.
"It is deliberately focusing its rate-rising muscle here, because it wants to attract more children to the business and help them build a savings habit.
"This is great news for parents looking for a home for a cash Junior Isa. NS&I is a much-loved institution, and because funds are 100 per cent guaranteed by the government, they know they can put their faith in it for their children's savings."
Ms Coles flagged the top Junior Isas currently available are Coventry Building Society at 3.6 per cent, Danske Bank at 3.45 per cent, NS&I at 3.25 per cent, Santander at 3.25 per cent and TSB also at 3.25 per cent.
emma.hughes@ft.com
