If you are hoping to move your children’s savings from a Child Trust Fund into a Junior ISA, the wait is almost over.
Back in 2013 the Chancellor George Osborne announced the Government intended to bring in legislation to allow parents to move the money from the now-obsolete Child Trust Funds into more competitive Junior ISAs from April 2015.
That legislation is included in the Deregulation Bill, which is currently going through Parliament. The Treasury has told us it expects it to be law by the end of March at the latest, in time for the new tax year in April. Good news for parents!
Why moving is important
Child Trust Funds (CTFs) were launched by the Labour Government. All babies born on or after 1st September 2002 were given a voucher of at least £250 at birth and at age seven which could be placed in CTFs. Parents and other family and friends could also top them up to a maximum of £3,720 a year. All returns were tax free, though the money could not be accessed until the child turned 18.
[SPOTLIGHT]However, in 2011 the Coalition Government replaced CTFs with Junior ISAs, a child version of ISAs. The key difference was that the Government would no longer offer a voucher to children to get them started in the saving habit.
Once Junior ISAs launched, the returns on CTFs plummeted, as providers focused their attentions on Junior ISAs.
The problem was that children with CTFs were barred from moving that money over to a Junior ISA. Essentially their money was locked in a rubbish saving account, offering rotten returns but hefty charges.
Thankfully that’s about to change. More than six million children currently hold CTFs, so stand to benefit from the new flexibility.
What you should do now
If your child’s cash is currently in a CTF, you might want to start doing some research about your new options. First, check exactly what it will cost you in exit fees to leave the CTF.
Next you’ll need to decide whether you want to put the money into a cash Junior ISA or a stocks & shares Junior ISA.
If you want to save in cash, the top account comes from Halifax, which pays 4%. However, you will have to have an adult ISA with Halifax too in order to get that rate, otherwise it falls to 3%. Alternatively you can get a rate of 3.25% with Nationwide’s Smart Junior ISA or Coventry Building Society’s Junior Cash ISA. All three can be opened with just £1.
If you’re going for a stocks & shares Junior ISA, then the potential is there for far greater returns. Money invested over 18 years has plenty of time to ride out any rough patches the stock market may experience, though there remains the risk that you’ll end up with less than you put in.
Be sure to shop around and compare management charges and fees.
Compare stocks & shares Junior ISAs in our investment centre