As banks try to reign in their reliance on the wholesale money market and enlarge their savings deposits to protect themselves from further credit crunch damage, Abbey has announced a competitive new account for children.

Abbey has launched its youth account – which pays eight per cent interest – in response to research which found that kids prefer a higher interest rate to any another incentive, such as special offers of free gifts.

The survey also revealed that more than 80 per cent of children’s savings accounts are opened by parents, and so the account can only be opened by children whose parents have an Abbey current account.

Children who are 11 or older can now apply for the account; they are required to make a monthly deposit of any amount, but those who are aged 16 or older are required to pay in at least £50 a month. In return, they will receive eight per cent interest on balances up to £500.

Steve Shore, director of Abbey Banking, commented: “Most kids let their parents set up a bank account for them anyway so this is a way of rewarding family loyalty. It’s one of the highest rates in the market for kids and we have a great switcher account for adults too, which also pays 8 per cent on balances up to 2,500 GBP.”

“Kids say they like high interest rates and 8 per cent is one of the highest rates out there. It’s encouraging that so many young people seem to be so financially savvy.”

When the credit crunch broke last summer, banks had been relying heavily on funding from the money markets but since credit dried up they have been more cautious about lending to each other and therefore have been competing for customers by offering increasingly attractive rates on savings and current accounts.

© Fair Investment Company Ltd