Child trust fund rates drop despite savings war

By Jennifer Hill

LONDON (Reuters) - Rates on cash child trust fund (CTF) accounts have fallen, despite the credit crunch stoking a war in the cash savings market.

The average maximum rates on cash CTFs have dropped 0.21 percent in the past year, according to research by price comparison website MoneyExpert.com.

The best accounts are currently paying 6.29 percent, down from 6.5 percent in June last year.

At the same time, the gap between the most and least competitive rates has widened from 2.05 percent to 3.25 percent.

The best rate at present, of 7.75 percent, is with Hanley Economic Building Society; Abbey is the worst provider, with a basic rate of just 4.5 percent.

The falling rates of interest buck the current trend for banks and building societies to boost their competitiveness to attract cash savings.

Savers are one of the few beneficiaries of the credit crunch, with increasingly attractive rates being offered as banks and building societies find it harder to raise funds on money markets.

Fixed-rate investments are particularly competitive, as they give institutions a guarantee that they will have the funds for a set period of time, which they can then use for lending on mortgages or personal loans.