If you’re one of the millions of parents whose children have a Child Trust Fund (CTF), from April 2015 you are allowed to transfer that money into a Junior ISA. So should you do it?
We explain what the differences between Child Trust Funds and Junior ISAs are, and whether you should transfer your children’s money.
What is a Child Trust Fund (CTF)?
If you have children who were born between 1 September 2002 and 2 January 2011, they will have a Child Trust Fund (CTF).
CTFs were set up by the last Labour government as a tax-free savings fund, allowing parents (or other family members) to save up to £4,000 a year in them. No withdrawals can be made from a CTF until your child reaches 18 – at which point the money goes straight to him or her.
In 2011 CTFs were replaced by Junior ISAs. Initially you couldn’t transfer their savings into a Junior ISA – you had to stick with the CTF scheme. Unfortunately, this meant that over six million kids with CTFs found themselves stuck with lower interest rates and less choice than children with access to Junior ISAs.
(This is because the banks are keen to attract lots of new Junior ISA customers, and compete with each other to offer the best rates. There isn’t the same level of competition with CTFs, because banks see them as a ‘dead’ product with no new customers).
But since April 2015, families with CTFs are able to transfer them to a Junior ISA if they wish.
Would my child be better off with a Junior ISA?
Junior ISAs are very similar to CTFs. Like CTFs, Junior ISAs are tax-free savings accounts that allow parents and family members to save up to £4,368 a year in them (2019/2020 allowance). No withdrawals are allowed until the child reaches 18, at which point the money goes straight to him or her (again just like a CTF). We have more information on Junior ISAs here.
So why would you consider transferring your cash from a CTF to a Junior ISA? Well, the Junior ISA market tends to be much more competitive than the CTF one, with banks offering higher interest rates and returns. At the time of writing, you can earn up to 4% interest on a cash Junior ISA, whereas many CTFs pay around 2%.
It might not sound like much, but if you paid in £200 a month to a Junior ISA paying 4%, after 18 years you’d have £62,875 in savings. Whereas if you paid in £200 a month to a CTF paying 2%, after 18 years you’d only have £51,945 in savings – a difference of almost £11,000!
Similarly, if your child has an investment CTF it may also be worth switching as many CTFs charge annual fees around 1.5%, as opposed to Stocks and Shares Junior ISAs with much more competitive fees around 0.5%.
Learn more about Beanstalk App, the new way to save for your kids’ future.
Do I have to transfer my CTF to a Junior ISA?
No. If you’re happy with your CTF, you can carry on paying into it.
Will I get money from the government to invest in a Junior ISA?
No. Unlike CTFs, there is no “free money” given to you by the government when you open a Junior ISA. However, you won’t lose any of your CTF money if you transfer it over to a Junior ISA.
How do I transfer money from a CTF to a Junior ISA?
To transfer your child’s money from a CTF to a Junior ISA, simply choose which Junior ISA provider you wish to switch to and they will provide you with the necessary forms (or they may fill out the form for you).
The process of transferring your CTF to a Junior ISA will take up to 15 working days (up to 30 working days for investment accounts). You must transfer all money from the CTF before then closing it (you can’t have a CTF and a Junior ISA – it’s one or the other).
Your CTF provider can’t refuse to transfer the money, however some Junior ISA providers may not accept CTF transfers.
How to Find my child’s CTF?
If you think your child has a CTF but you have lost the details, it isn’t difficult to find a lost Child Trust Fund as long as you are the parent or registered guardian of the child.
CTFs were initially set up via HM Revenue and Customs so the information is held there. Log in to HMRC using your Government Gateway credentials. If you can’t remember what they are you can easily register, or click the “forgot my password/user ID/password and user ID” links.
Then simply complete the online form to request details of your Child Trust Fund provider (requires some personal details of you and your child).
Within 3 weeks you should receive a letter from the HMRC with the details of your child’s CTF.
If I transfer my CTF to a Junior ISA, does that count towards the Junior ISA’s tax-free allowance for that year?
No. A CTF transfer won’t count towards the Junior ISA’s annual tax-free limit. Once you have transferred your CTF, you can make further contributions to your child’s Junior ISA if you wish – as long as they don’t go over the yearly allowance. (The Junior ISA allowance is £4,368 in the 2019/20 tax year).
Where can I get more information on Junior ISAs?
We hope this blog has helped you decide whether to transfer your CTF over to a Junior ISA. For more information on Junior ISAs, see our article Junior ISAs explained.
KidStart has just launched the Beanstalk App, reinventing the way families can save money for their children. Invite family and friends to help you save for your kids, top up with KidStart earned savings on your shopping and use round ups to save little and often. Find out more here.