Save, make, understand money


YourMoney.com Mailbag: Should I transfer a Child Trust Fund to a Junior ISA?

Paloma Kubiak
Written By:
Paloma Kubiak

Dear YourMoney.com, a few years ago I opened a Child Trust Fund for my son but with the Junior ISA the now ‘in’ product, is it worth transferring the money across?

Child Trust Funds (CTFs) were introduced in 2002 as a way of saving for children. The government funded the CTFs with a £250 voucher, says Naeem Siddique, investment manager at stockbroker Redmayne-Bentley.

It was available to children at birth, born between September 2002 and 2 January 2011.

Siddique says they usually consisted of passive products and fees were capped at 1.5% by the government, though some providers levied this charge in its entirety to account holders.

They were then replaced by Junior ISAs (JISAs) and you can only hold one account, not both.

Both schemes have the same maximum investment amount of £4,080 per tax year and the balance becomes the property of the child at the age of 18.

If you already hold a CTF, the main problem, says Andrew Hagger of MoneyComms, is that the choice of accounts and providers offering these are not as comprehensive as the newer JISA scheme.

Therefore, the longer time goes on, CTFs will become a “much smaller market than JISAs” and he says that providers will focus their marketing efforts on the latter.

Hagger says: “With more focus on the JISA as the current child savings scheme, it’s likely that the costs will be lower and a wider choice of investments available – potentially more suitable and better performing.”

This view is shared by Siddique: “JISA holders can benefit from the greater array of investment choices available within cash or stocks and shares JISAs, where the offering is more akin to the adult version. CTFs have tended to be opened as stakeholder accounts where investment choice has been limited.”

He adds that while there is usually no fee to convert the product, some providers may levy a fee to transfer to a new provider and if you are thinking of transferring out, you can do so without losing the original government contribution.

Siddique continues: “A JISA holder could opt to invest in passive funds where charges could be markedly lower, or invest in specialist funds with active managers. However, consideration has to be given to any annual charges a JISA provider may impose. A JISA can be split between a Stock and Shares JISA and a Cash JISA, offering greater flexibility whilst being mindful of the annual allowance.”

Once your child turns 18 JISAs must be converted to an adult ISA, however this doesn’t impact the adult ISA allowance for the tax year. But at the moment a CTF does not have this ability.

Siddique adds legislation is expected to be brought in to allow the accumulated funds in CTFs to remain in a tax-efficient wrapper prior to the maturity of the first accounts.