Should you transfer your child’s CTF to a Junior ISA?
27/03/2015
If your child was born between 1st September 2002 and the 2nd January 2011, they will most likely have a Child Trust Fund, even if you are unaware of it.
What is a Child Trust Fund?
A Child Trust Fund, or CTF, is a long term, tax free savings account for children. They were introduced by Tony Blair’s Labour administration in 2002, and gave every child in Britain, who was born between 1st September 2002 and 2nd January 2011, a voucher worth £250, with the aim of encouraging saving. In addition to this the parents were also given another voucher, again worth £250 for their CTF, when they turned seven years old. Some lower income families received more.
When the Coalition government came into power in 2011, they discontinued the £250 seed money and the additional top ups, and replaced the CTF with the Junior ISA.
How does the CTF differ from the Junior ISA?
Just like the CTF the Junior ISA is also a long-term savings or investment account. The CTF was introduced by the government to encourage parents to save for their child's future. Both the CTF and the Junior ISA have the same tax perks, and parents can save the same amount of money into each (£4,080 for the 2015/2016 tax year). Approximately six million children have a CTF; this is because on the implementation of the CTF they were assigned to every child. In comparison to the Junior ISA only 400,000 children have started saving via this method.
Many industry experts have claimed that Junior ISAs work out more efficiently for saving in the long run. CTFs are predominantly cash accounts, and people have claimed that they have historically low interest rates. Experts have also said that CTFs offer a much more limited investment choice, compared to the Junior ISA.
Should I transfer my child’s CTF to a Junior ISA?
There are some other great reasons to transfer to a Junior ISA as well:
• Owners of the Junior ISA save tax efficiently
• Anyone- parents, grandparents, family, friends, can pay money into a Junior ISA, up to the maximum annual allowance.
• Savings can be spent on anything the child chooses when they turn 18- university fees, first car or a deposit for a house
• As of 19th November 2013, the best interest rate for a Child Trust Fund was 3%, and the best interest rate for a Junior ISA was 6%. This because financial institutions could no longer promote and sell CTF’s
Sarah Cole, a financial journalist, told us what she thought of the Child Trust Fund when she was assigned one for her child:
“When the CTF arrived it seemed like a brilliant development, and as it was such a long-term investment, it made more sense to get a stockmarket investment than a savings account.
Of course, when they were discontinued the provider I was with introduced such large annual charges that I switched. My new provider them promptly did exactly the same.
It meant that last year, despite it being an incredible one for the stockmarket, and me having invested additional money in the account, the growth of the fund only just covered the annual fee - so I was left with a gain of less than £10.
For something that was supposed to teach parents the incredible potential of investing for children, it has managed to achieve exactly the opposite.”
Important information
It is worth bearing in mind that the money in a Junior ISA can only be accessed once the named child turns 18 years old, and then only by the child themselves. A parent, even if they are the only ones who have contributed to the fund over the years, has no legal right to any of the money, or even any say in what the child spends the money on. (These regulations are also applied to CTFs)
A Junior ISA might not be for everyone, but for parents of children with CTFs, there is potential to get a much better deal and grow your return if you do. If you would like any more information on CTFs or Junior ISAS, please ask us a question online or call us on 0800 092 1245.
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