Under HMRC rules, you can transfer your child’s Child Trust Fund (CTF) into a Junior ISA (Individual Savings Account). We wanted to suggest some things to think about when considering a switch from a Child Trust Find to a Junior ISA.
First a bit of background: To encourage long-term saving, the Government gave every child born in the UK between 1st September 2002 and 1st January 2011 a voucher, typically of £250, to set up a long-term savings account called a Child Trust Fund. CTFs are no longer available today, as they were replaced by Junior ISAs in 2011.
This means that every child born between these dates likely has a Child Trust Fund unless you have already switched it to a Junior ISA. This is true even if you don’t remember setting it up as the Government had a process to set up the Child Trust Fund for those parents who forgot. We explain how to locate a child trust fund in a previous article.
So here are some things to think about when deciding whether to switch:
- The rules: Under HMRC rules a child is not allowed to have a Child Trust Fund and a Junior ISA so if you want to open a Junior ISA, you must transfer the Child Trust Fund to your new Junior ISA provider.
- Costs: Consider any fees associated with your child's CTF and compare them with the fees of a Junior ISA as high fees can eat into your returns over time. If the Child Trust Fund is in a cash savings account, there will not be fees although the accounts only pay interest. However the majority of Child Trust Funds were stakeholder accounts. These investment linked accounts frequently had fees of 1.5% per year as this is what the Government mandated as the maximum. Stocks and shares Junior ISAs often have lower fees, for example: Beanstalk charges 0.5% so an account with 4 years left and a value of £3000 would save £120 in fees if switched, you can take a look at our Switch & Save Calculator.
- Features: The Government stopped new Child Trust Funds being set up in 2011 meaning that the ones still in existence are a legacy product. This reduces the incentive for providers to innovate and update the product and service. Junior ISAs often offer more features than Child Trust Funds as the product is newer and providers are developing additional features.
- Ease of access: You may want to consider how easy it is to get information on the performance of the Child Trust Fund or Junior ISA or make changes and manage the account. Is it easy to check performance through an app or a website whenever you want or do you need to wait for an annual statement.
- Performance: Although a child is only allowed one Child Trust Fund, they are allowed to have both a cash Junior ISA (ie: a savings account) and a stocks and shares Junior ISA so you can decide to have some of the child’s savings in an interest bearing account and some in an investment linked account. Different providers also offer different choices as to what you can invest in so look at the choices available versus your existing Child Trust Fund.
- The transfer and application process: The actual transfer process is relatively simple in that you will need to complete a transfer form provided by the Junior ISA provider with details of the old Child Trust Fund. They then co-ordinate with the old provider to transfer the money across. Different providers do have different processes for completing the transfer form with some being easier than others.
If you have any questions or are uncertain what to do, please do consider seeking guidance from a financial advisor who can provide more personalised advice based on your circumstances and investment goals for your child’s account.