As parents, it’s only natural to want what’s best for our kids, especially when it comes to financial matters. But giving your little one the best possible future is no easy task and can require a lot of planning.
If your child has a Child Trust Fund open on their behalf, it could be a good idea to investigate whether transferring it into a Junior ISA (JISA) is a better choice for their fees and potential growth.
With an estimated £1.4 billion of unclaimed money [1] held in these accounts – and many of those considered to be lost (according to HMRC, there’s an estimated 670,000 young people who haven’t claimed their money, with the average pot at around £2,212) [2] – it makes sense for parents and guardians to be taking an interest in considering a Junior ISA instead.
What is a Child Trust Fund?
Child Trust Funds (CTFs) were launched in April 2005 to encourage long-term saving, and give children born between 1st September 2002 and 2nd January 2011 a financial head-start in their adult life. Giving parents or other relatives a way to put money aside for their children, it also meant not having to pay tax on any interest or profit that built up over the years. The government would also make a contribution between £250 and £500 (depending on the household income) to give each fund a boost.
Back then, you could choose between three types of Child Trust Fund: Cash, Shares, and Stakeholder. With a Cash CTF, you could save cash for the child, and with the two other types, the child’s money was invested in a number of assets, such as shares and bonds.
But if you do have a Child Trust Fund open, you can still pay into it until your child turns 18, as long as you don’t go over the yearly limit (which currently stands at £9,000 for the 2024/25 tax year), and your child will still be able to benefit from tax relief.
When the child turns 18, the account matures into an adult ISA and no further money can be added to it as a ‘Junior ISA’ (although they could continue to top up their money in this new adult ISA if they want to). At this point, the money becomes accessible for your child to withdraw. It’s worth keeping your and your child’s personal details up to date, making a note of any fees and interest rates — and finding out how these may change when the child becomes an adult.
Child Trust Funds are no longer available to open, as they were replaced by Junior ISAs (JISAs) in 2011 (and you’re not allowed to hold both a CTF and a JISA at the same time). This is why many people decide to transfer to a Junior ISA.
CTF vs Junior ISA: what’s the difference?
Junior ISAs are quite similar to Child Trust Funds. Not only do they allow you to save and/or invest for your child, they also allow your child’s potential interest and/or gains
to be tax-free. As they are currently available to open (unlike Child Trust Funds), there is a competitive market for Junior ISAs, with providers offering a range of interest and fee levels.
There are two types of Junior ISA available; a Junior Cash ISA, and a Junior Stocks and Shares ISA (like Wealthify offers). You can have one of each open for your child, with some parents or legal guardians opting for both, while others prefer to use just one type.
Junior ISAs come with a combined annual allowance of £9,000 (subject to change), and you have until 5th April to make the most of your child’s ISA allowance.
Junior Cash ISAs
These let you save money on behalf of your child. They will receive interest on the money, which they won't have to pay tax on.
Junior Stocks and Shares ISAs
These accounts give you the opportunity to invest in a large range of assets on behalf of your child, such as shares, bonds, property, and commodities. They won’t need to pay UK tax on any profits they make.
The key consideration for both CTFs and Junior ISAs is that the money becomes accessible to the child on their 18th birthday. At that point, the account will mature into an adult version of their account and they’ll be able to choose what to do with their money — whether that’s using it to buy a home, a car, to further their education, or leaving it in the account with the hope it could potentially grow a bit more.
What should I consider before transferring to a Junior ISA?
- As mentioned, you cannot have both a Junior ISA and a Child Trust Fund open at the same time. The good news about this is that it’s relatively easy to transfer from a CTF to a Junior ISA (more on that below).
- If you’re disappointed with the returns delivered by your child’s account, or think you’re paying too much in fees, transferring your CTF to a Junior ISA could be a consideration for you.
- The interest rates offered by Cash CTFs could be lower than those from Junior Cash ISAs.
- And with Shares or Stakeholder CTFs, the range of investment choices available may be limited. With a Junior Stocks and Shares ISA, their money would typically be invested in a wider array of investments.
The choice to transfer is up to you, but it could be a good idea to keep an eye on what’s on offer until something catches your attention.
How to find a Child Trust Fund
What with the millions of pounds locked up in lost Child Trust Funds, if you think you have an account somewhere, it’s worth checking.
It’s easier than you might think; just visit the Gov.uk website and use their tool to track down your CTF provider: www.gov.uk/child-trust-funds/find-a-child-trust-fund
You’ll need the child’s:
- Full name;
- Address history;
- Date of birth;
- National Insurance number (if you have it to hand);
- Their adoption details (if applicable);
- Any past names they have been known by.
And for you as a parent or guardian, you’ll need:
- Any past names that you have used.
Once you have the provider’s details, you can contact them to ask about the accounts balance, fees, interest rates, and to update your personal details. From there, you can research the market to see if transferring to a Junior ISA is the better choice for your child.
How to transfer CTF to Junior ISA
Transferring a CTF to a Junior ISA is easier than you might think.
- The first step before transferring anything is to compare Junior ISA providers; things to consider are fees, interest rates, types of investment style, ethical investing options, etc.
- Once you’ve located the Child Trust Fund and want to move the funds into a Junior ISA of your choice, you just need to follow the new Junior ISA provider’s steps.
- With Wealthify, for instance, the process to transfer is simple — you’ll just have to tell us how much you need to transfer and choose the investment style that suits you. Just remember to complete our official transfer form to keep all your tax allowance benefits.
- You’ll have to transfer the full balance from a Child Trust Fund, since your child cannot hold both a CTF and a Junior ISA at the same time.
- As soon as the transfer is completed, the Child Trust Fund account will be closed, as your child will become the owner of the new Junior ISA instead. You’ll continue managing the account for them until they are 16 (or if they’re happy for you to, you can continue managing it until they are 18).
How long does a Child Trust Fund take to transfer?
While initiating the transfer from your side of things should be relatively quick, the transfer of funds does depend on your current provider and the type of CTF you have.
Your current provider should be able to give you a precise idea. As a guideline, it’s sensible to think a Cash CTF would take a couple of weeks to transfer, whereas a Shares or Stakeholder CTF could take longer (due to the current provider needing to sell off your child’s investments).
Summary
So, should you transfer a Child Trust Fund to a Junior ISA account? Well, the answer is down to your plans for your little one’s future. But if you’re feeling deflated by the projected returns their CTF is offering, there are many competitive Junior ISA accounts on the market.
Wealthify has won Best Junior ISA for five years in a row at the Personal Finance Awards. If you’re interested in our Junior ISA, explore everything you need to know and use our slider tool to predict your child’s projected earnings here:
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
References
[1]: https://researchbriefings.files.parliament.uk/documents/CBP-9988/CBP-9988.pdf
[2]: https://moneyweek.com/516335/child-trust-funds-where-is-your-childs-cash
