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Would you transfer your Child’s CTF to a Junior ISA?

As the Government starts a consultation process into transferring Child Trust Funds (CTF) to Junior ISA’s, we look at the reasons why this change has been called upon, and give you some food for thought for your own decision.

The consultation itself will not end until 6 August 2013, so with over two months to come to a decision, there is plenty of time to take everything into consideration. The plan for the consultation, although called for repeatedly by critics of the CTF, was only announced in this year’s Budget, with the Government highlighting what they see as a commitment to helping savers.

Now representative groups for children and savers, CTF holders, Junior ISA and CTF providers, as well as financial advisors all have the opportunity to inform the Government of their opinion, and will ultimately have a say in the outcome of this debate.

However at the end of the day it all comes down to what the parents and account holders want to do, and for many making the switch might just be seen as an inconvenience with no clear positive outcome. To help with this we highlight some key points.


The Child Trust Fund


- Automatically opened for the majority of children born in the UK between the dates of 1 September 2002 and 2 January 2011
- Vouchers of either £250 or £50 were committed to the CTF by the Government
- Tax-exempt saving
- Annual limit of £3720 (correct financial year 2013/2014)
- Matures at age 18, and money is paid to the child


The Junior ISA


- Any child who has a CTF is denied access to a Junior ISA under current rules
- Tax-exempt saving
- Annual limit of £3720 (correct financial year 2013/2014)
- Matures at age 18, and money is paid to the child


On the face of it there doesn’t seem to be much difference. If anything the CTF seems more attractive due the initial money contributed to the fund by the Government. However it is important to remember that these two savings plans are not in competition with each other. If your child qualifies for a CTF then they do not qualify for a Junior ISA, and vice-versa.

So why would you want to swap a CTF for a Junior ISA which, on the face of it, seems to share many similarities with the CTF?


More choice


Well the first point to be made is that Junior ISA’s offer a far wider choice of providers than CTF’s. Many companies opted not to offer CTF’s when they were launched, because the Government made it mandatory that they offer a stakeholder version of the plan, which was invested in the stock market.

However the Junior ISA as a product is far more flexible and providers didn’t have to offer a version of the account invested in the stock market, meaning there is a far wider choice of offerings


CTF 'plan fees'


Some providers offering non-stakeholder CTF’s have introduced plan fees. These are fees charged annually and usually amount to somewhere in the region of £30 per year. Although this may seem like a low amount, over an 18 year period this could add up to more than £500. Money taken directly from your child’s pocket effectively.


Annual management charges


These are charges that are included in the vast majority of financial products which are investment-based. The charge does exactly what it says; covers the cost of a fund manager who will make investment choices based on the market.

However the annual management charges on stakeholder CTF’s, which are index-tracking funds, are usually at least 1.5pc. If you compare this to investment Junior ISA’s, which have offered charges as low as 0.27pc, then it is clear to see you will be losing more of your fund to the manager in a CTF than in a Junior ISA.


Fund Performance


This is perhaps the biggest underlying issue between the two types of account.

Let’s start with cash. Cash Junior ISA’s are popular with those who either have a high attitude to risk, or have a shorter amount of time to save (child is older when they open account). Because you are able to shop around more for a Junior ISA, and there are so many more options, the interest you can achieve is much better. The highest paying CTF is currently 3.05pc, while the best buy Junior ISA currently pays 6pc, and there are other options which also beat the 3.05pc offered by the CTF. No competition.

In terms of stocks and shares there is also an advantage to switching. Although strictly returns are not guaranteed, a wider choice of funds makes the earning potential of a Junior ISA greater than that of a CTF. You typically have more flexibility to invest in markets with a higher growth potential, but you must remember that stocks and shares are for medium to long term growth, so if your fund is going to mature in five years or less, it’s better to stick to cash.


So, would you switch?


These are the main reasons the Government has been under so much pressure to make the change, and now there is a real possibility of it being passed, it comes down to you to act.

There is no harm in at least reviewing your fund. Have a check to see what charges you are paying and what the interest rate on the fund is, or if it is investment, how it has performed so far. Then, like shopping for anything, have a good look at what is out there before choosing to switch. Remember, you don’t have to keep your money with the same provider, and no switch is permanent – you can move your money again when you want!



If you have any questions about the proposed switch from CTF to Junior ISA, please contact our advisors who will be happy to help










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