Chancellor George Osborne announced a consultation into allowing CTFs to be transferred to Junior ISAs during his fourth Budget statement today. The move is expected to unlock £4.8bn in CTFs

CTFs have been suffering from limited choice and higher charges on investments, as well as lower rates for cash savings for more than two years now. The situation has been getting worse, with a number of providers raising fees in recent months, according to Darius McDermott, managing director of Chelsea Financial Services.

“Over the course of 18 years, the initial charge on investment CTFs alone could result in a pot of money worth £7,500 less than for a child born a few months later who had a Junior ISA, which would be completely unfair and an unnecessary disadvantage for many children,” McDermott said.

Junior ISAs were first introduced in November 2011 as an attempt to encourage saving for children, following the abolition of CTFs at the beginning of that year.

However, many CTF holders were left in limbo as they were unable to transfer into or set up a Junior ISA, which offers more flexibility and choice of investments, although they can continue to top up existing accounts.

Jason Hollands, managing director at Bestinvest, said CTFs had become classic “zombie” products with lack of competition and innovation, a dearth of mainstream providers, poor choice and high fees.

Parents have been left with an intolerable situation where some children were stuck in these legacy products potentially until age 18, while their younger siblings have had access to considerably more attractive options available through Junior ISAs, he said.

Last October Bestinvest published research which revealed the extent to which the CTF market had stagnated. It found that 44% of CTF providers had no information on their products on their websites and that 74% of CTF accounts were invested in stakeholder funds which, while originally perceived as a “value” option because of a 1.5% cap on annual fees, were in fact overwhelming UK index trackers levying the maximum allowed under the cap.

Hollands said: “1.5% is very high for this type of investment given that similar index trackers can be purchased within Junior ISAs for as low as 0.27% per annum.

“Moves to allow zombie child trust funds to be transferred into Junior ISAs will provide parents and guardians with access to a much wider choice of investments including lower cost options. Given the spiralling costs of a university education, getting access to competitive children’s savings schemes is important for parents.”