The average person had just £1,771 in savings in the period from July to September, down by £279 on Spring figures, according to the latest ING Consumer Savings Monitor.

This is the savings equivalent to just 40 days’ pay in accessible cash, at a time when it takes an average of 6 months to get back into work, if you lose your job, according to ING.

Young people in the 16 to 24 age group were even more vulnerable, with less than  a week’s pay – just £348 – in reserve, ING said.

While over a third of people (38%) used their savings to pay household bills, 31% spent part of their savings on a holiday, and 11% of people used their reserves to pay the usual back-to-school expenses for the children.

The situation reflects the first chill of the government pay freeze, with many families dipping into their savings accounts to adapt to a period of rising prices, but static incomes.

The average citizen is currently far from planning monthly savings or new investments, according to ING.

Many families are still struggling to pay down debt and personal loans accrued during the recession. Unsecured debt (i.e. credit cards, store cards, and overdrafts) fell by an average of £57 during the summer, with 18% of people having to tap into their savings accounts to cover their bills.

Looking forward, 35% of people now expect to put part or all of their usual saving on hold, as general government cutbacks take hold, Christmas moves into view, and the spectre of VAT increases in 2011 looms large on the horizon.

*All figures from the quarterly ING Consumer Savings Monitor

There is good news today for those looking for children’s savings options, following the recent scrapping of the Child Trust Fund scheme (CTF).

The Government has today announced it will launch the Junior ISA, a tax-free savings account for children, in Autumn 2011.

Here are the important points about the planned Junior ISAs:

-  Parents can open a Junior ISA for any child under 18

-  Savings by parents and friends into the children’s ISAs become the property of the child, and are locked in until the child turns 18

 -  Savings growth in the Junior ISA is tax-free but, unlike the CTF scheme, there will be no government contributions or automatic enrolment

-  Maximum savings limits for childrens ISAs have not been announced, but may mirror the old CTF allowance of £1,200 per year

 -  The Junior ISAs will come in 2 types, reflecting ‘adult’ ISAs: the cash ISA and the stocks and shares ISA

-  The 5m existing CTFs are not affected by the new ISAs for children, and will continue until the child turns 18

Currently, adults not using their own ISA allowance of £10,200 per year are, of course, free to save for their child using an ISA in their own name. The adult ISA allowances are £10,200 per year of which half (£5,100) can be in a cash ISA, and half in a stocks and shares ISA. Alternatively, all £10,200 can be placed in a stocks and shares ISA, but not the other way around – only £5,100 is possible in the cash ISA. These are annual allowances, however – each year your slate is wiped clean, and you start again, with a fresh ISA allowance.

Adult cash ISAs can be opened once a child turns 16, and stocks and shares ISAs are available to those aged 18.

The Treasury has proposed a tax-free savings account that would provide parents with a new, tax-efficient option for saving for children.

The new account comes as the Child Trust Fund scheme, which was axed as part of the latest budget, will come to the end of its phase-out period at the end of the year.

As an investment for children, the proposed new account looks remarkably similar to the Child Trust Fund scheme, and could come onstream as early as January 2011.

While inviting consultation and input from the financial services industry for the new children’s investment account, the Treasury has suggested it include a ban on withdrawing funds until the child turns 18, children’s investments based on both cash and stocks and shares, maximum annual contributions, and tax-free returns.

Each of these elements featured in the Child Trust Fund scheme, which offered three options, a cash account, a restricted stock market investment via the stakeholder account, and a full, unlimited stock market investment through the Child Trust Fund share-based account. The maximum annual investment in the Child Trust Fund Scheme was £1,200 per child, per year.

One aspect of the Child Trust Fund scheme that is conspicuously absent from the new plan, however, is the government’s ‘start-up’ contribution of a £250 voucher to the children’s investments made for every child born after 1st September 2002. This was doubled to £500 for families on child tax credit, and a second voucher for the same amount was payable on the child’s 7th birthday.

However, very few of the children’s investments actually received the second voucher, before the Child Trust Fund scheme was scrapped in mid-2010.

Savers are increasingly in danger of losing money by failing to factor in tax and inflation, when comparing best bank savings accounts.

Savers who focus on bank current accounts are also failing to consider the longer-term tax-free savings options offered by stocks and shares ISA accounts.

Many savers on comparison websites, who look at the current listings of instant access current accounts, will see bank savings accounts from ING and Santander which describe ‘top interest rate’ accounts offering 2.75% gross per year.

In order to work out the real value of savings interest that will be paid in such accounts, it is first necessary to remember that the 2.75% figure is gross. In other words, any earnings are liable for income tax.

Income tax does not just apply to your salary, but to all forms of earnings classified by the Revenue as income, including interest on savings in traditional bank current accounts.

For a basic rate taxpayer, this means that 20% tax would be due on the 2.75% interest, so that the actual interest paid net by ING and Santander would be just 2.2%. A higher rate taxpayer would be worse off again, paying tax at 40%, so that he would receive only 1.65% of interest on his savings.

Then inflation must be considered, which currently stands at 3.1%. Every saver must keep the value of their money growing ahead of inflation, to preserve its ‘buying power’.

This means that a 20% taxpayer would need to achieve at least 3.9% in savings growth, before his money is really growing. The 40% taxpayer would need to achieve almost 6% in interest, to achieve the same.

The European Commission is to raise bank savings protection under the Financial Services Compensation Scheme (FSCS)  to €100,000.

For the sterling area this will be set, based on exchange rates at the end of 2010, at between £80,000 – £85,000, and is a substantial increase on the current bank savings protection guarantee of £50,000.

‘This means that each person with UK bank savings will now be guaranteed a return of at least that amount, in the event that a bank or building society were to collapse or fail. The increased level of cover applies to any bank based in the European Economic Area, and is part of a plan to harmonise bank savings protection throughout the EU.

The measures will take effect at the beginning of 2011, as part of a general strategy to reassure savers who were unsettled by the failure of the Icelandic banks in 2008. The proposals also stipulate that compensation of UK bank savings will be paid within seven days, whereas investors in the Icelandic banks had to wait for up to 8 weeks for their compensation, after the 2008 collapse.

Information from the Financial Services Compensation Scheme (FSCS) indicates that the new levels will cover 98% of those with UK bank savings, compared with 97% who had been covered by the lower £50,000 level.

The higher compensation levels will also be an added incentive to the 37% of UK households who now have savings ISAs and are using ISAs savings as a means of building up UK bank savings free of tax. Consumers in the UK are currently entitled to an Isas savings allowance of up to £10,200 per year, of which half can be in a cash Isa, and half in a stocks and shares Isa.

The proposals also indicate changes to the remit of the UK bank savings protection scheme. so that bank savings protection can be applied for through the FSCS in the event of the failure of a foreign bank. This will mean that UK savers will deal with an authority in the UK, rather than having to deal with a bank savings protection scheme in another EU country.

The news comes following the government’s decision to scrap the Child Trust Fund scheme, the keystone of the children’s savings business for Children’s Mutual, earlier in the year.

The Children’s Mutual has said that, on a temporary basis at least, it will accept no new children’s savings business for its With-Profits CTF, its Growing Up Bond, and its Non-Stakeholder CTF. The company’s stakeholder CTF is unaffected.

The company has said this will not affect existing customers saving for children through these products, which have been temporarily suspended while the company finalises its future strategy with regard to its children’s investments products.

Existing Child Trust Fund accounts will continue to run until all children have reached their 18th birthday, and annual children’s savings of up to £1,200 in the accounts can proceed as usual.

Under the Child Trust Fund scheme, government had been giving all children a £250 voucher to open a CTF account, with a second £250 payment due on their 7th birthday. The Child Trust Fund scheme will now be phased out, with vouchers valued at just £50 being provided to children born after 1 August this year, and no new children’s savings vouchers at all issued after 1 January 2011.

In reference to the closure of the Child Trust Fund scheme, Children’s Mutual chief executive David White said: We’re now going to have a black hole for children’s savings, we don’t know what children’s savings are going to look like.”

The new ISA sales figures, from the Investment Management Association, showed a major increase on the sales levels of ISA accounts in the previous May, which totalled £360m.

The government’s announcement in the June 2010 budget that ISA allowances will increase in line with inflation have boosted further the popularity of the ISA as a tax-free savings option. Any interest paid on ISA savings in a cash ISA is not taxed, making ISA accounts a more attractive option than bank savings accounts.

 The ISA option has already been taken up by 37% of households in the UK, according to Halifax.

Increased ISA savings limits

The annual allowable limits for tax-free savings in ISA accounts now stand at £10,200 in 2010/11.

ISAs come in two variations. ISAs provide tax-free growth on savings in an ISA cash account, or tax-advantaged growth in stocks and shares ISAs.

ISA savers can have both types of ISA accounts, investing up to half their total allowance, or £5,100, in a cash ISA, which combines the tax-free benefit with the safety and security of a bank or building society account.

ISA savers can also use their ISAs to invest in the stock market, by opening a stocks and shares ISA, where they can invest up to the remaining £5,100 of their ISA limit.

ISA savers who do not wish to have a cash ISA can place their full £10,200 ISA savings allowance in the stocks and shares ISA, although the reverse does not apply - the full £10,200 amount can not be placed in a cash ISA. The limit for ISA cash savings is capped at £5,100.

Of those shopping around for the best ISA deals this year,  81% will be opting for stocks and shares for their ISA savings, according to a recent survey by Barclays Stockbrokers. This is because interest paid the ISA cash accounts has been driven down by the currently low Bank of England interest rates, making ISA cash accounts less attractive then the stocks and shares ISA, in the current economic climate.

According to new research by The Children’s Mutual in its annual ‘What I Want to Be’ poll, becoming a teacher, doctor or vet are the job of choice for five, six and seven year-olds - and those choices have topped the poll for the last  three years, demonstrating that children consistently aspire to careers that will need higher education.

However, funding the university costs for a budding doctor or vet could require savings for kids of £116,000 and £117,000 respectively in 18 years’ time. It currently costs £74,700 to train to become a doctor and £75,100 to become a vet but these are set to increase by around £41,000, based on current projection levels, over the next 18 years.

The Children’s Mutual questioned over 1,000 parents about what their children wanted to be when they grew up, and found that the majority of today’s children are looking for a career which requires further training and education.

The reality also suggests that saving money for children is essential, even for those parents hoping their children might fund their own education. Over 93 per cent of parents of today’s young adults are still funding their children, according to The Children’s Mutual.

The top career choices for children as listed in the study were as follows.

Girls: Teacher / Vet / Doctor / Nurse / Dancer / Hairdresser / Pop Star / Artist / Actress / Ballerina.

Boys: Footballer /Policeman / Fireman / Scientist / Doctor / Teacher / Vet.

Saving for kids is as much a part of financial planning as saving for one’s own pension, and there are a good range of saving plans for children available, even though the mainstay of children’s savings, the Child Trust Fund, is being phased out.

“Parents tell us their young children are highly ambitious and that they, as parents, fully intend to help them fund their futures. But the sums of money the top careers command could cause financial nightmares for families who don’t plan ahead,” said Tony Anderson, Marketing Director of The Children’s Mutual.

“While the Coalition Government has announced its plan to significantly reduce payments into Child Trust Funds from 1 August 2010 and to abolish the scheme altogether for new babies born from 1 January 2011, the reality is that the cost of children’s futures hasn’t changed. We believe that the only way for parents to financially manage these costs is by saving regularly over the long term.”

Government think tank the Centre for Policy Studies has published proposals for a radical rethink of pension savings and tax-incentivised saving in Individual Savings Accounts (ISAs).

The five-point plan contains the following key suggestions for simplifying current frameworks for pensions savings:

1. There should be an annual cap on all tax-incentivised savings of £45,000, including a cap of £35,000 for pension savings. Tax relief should be at the saver’s marginal (i.e. upper) tax rate, offering some 50% tax relief to those earning over £150,000.

2. Savers should be able to access at least some of their pensions savings before retirement. This could be made workable by bringing the pensions and ISAs areas closer together. For instance, pensions saving using ISAs could be encouraged by offering retrospective tax relief at retirement on ISAs savings by re-nominating them as pension savings. Also, existing savers should be allowed to take 25% of their pension savings before they retire.

3. Partners should be allowed to use each other’s pension pots for pensions saving while at the same time receiving tax relief, irrespective of their own earnings circumstances.

4. Unused pension savings could be bequeathed to other family members’ or third parties’ pension schemes, free of Inheritance Tax (IHT). This would encourage pension saving by allowing wealth to cascade down the generations, and strengthening the sense of personal ownership of pension savings.

5. Auto-enrolment under the government’s plans for pensions in the National Employment Savings Trust (NEST) scheme should be extended to include pensions saving in ISAs. This should appeal in particular to younger savers, who could feel that their longer-term or pension savings were working hard for them, without being ’locked away’.

“[The report] also describes steps towards sweeping away the two-track pension/ISA tax relief regime and replacing it with a single, unified tax framework, on that is easy to understand and attractive to long-term savers. Such a radical simplification is a prerequisite to encouraging more people to save more, and it would, for example, enable the industry to offer customers a simple savings continuum, perhaps under a ‘lifetime savings’ banner,” said the Centre for Policy Studies.

The Child Trust Fund scheme provided a £250 or £500 child trust fund voucher to every child born after September 2002, for investment only in a Child Trust Fund. It has now become the victim of government cuts and will be phased out completely by the end of the year.

The companies managing existing Child Trust Funds have pledged to continue to so do, but there is speculation that rates of interest in the accounts, and government’s gentle tax treatment of savings in the scheme, could be adversely affected once the CTF scheme is closed. Savers may, therefore, feel less confident about continuing to use the CTF for future contributions to their children’s savings.

 For them, and for future parents who will no longer receive the child trust fund voucher, there are a number of children’s savings alternatives, moving forward.

Children’s Savings – What are the options?

There are many providers offering savings accounts specially designed for childrens savings. Tax-free interest is available on children’s savings, but not automatically – parents must fill in an R85 form for each account.

You can set up an offshore bond for your child, which makes your children’s savings tax-free while the funds are still held offshore. They can be brought back ‘onshore’ once your child turns 18, at which point tax is payable on your children’s savings. However, if this is done over time, the tax can be written off against your child’s tax-free allowance, which is the same as an adult’s i.e. currently £6,475 per year.

ISAs can be opened for a child, once they turn 16, offering tax-free savings in the cash ISA, and tax-advantaged savings in the stocks and shares ISA.

Children’s Savings – Children’s Bonus Bonds

Children’s Bonus Bonds are a secure savings option guaranteed by NS&I, which is linked to HM Treasury. You can save from £25 to £3,000 in each bond ‘issue’ and returns are free of tax. The bonds can be held until your child turns 21, at which point they must be cashed in, as they are no longer deemed to be children’s savings. You can use these bonds for children’s savings for any child – not just your own!

Children’s Savings – Child Stakeholder Pension

Did you know that it is now possible to open a pension fund for a child? The pension fund operates according to the same rules as any adult fund, and cannot be accessed until your child retires – however, your gift to your child is the constant knowledge that your children’s savings may have grown very substantially over a long time invested in the stock market, and could provide them with a considerable cushion, at the end of their working life.

Would you like to learn more about children’s savings? Make a savings enquiry online now or ring freephone 0800 678 5929.