Savings for children made fairer

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Published: Sunday 5th April 2015 by The News Editor

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Saving will be made fairer for more than six million children whose cash has previously been trapped in a child trust fund (CTF) from tomorrow.

Changes introduced by the Government mean the families of children with a CTF will have the option to transfer the £4.8 billion collectively held in these accounts into a Junior Isa instead if they want to.

CTFs were introduced under the previous government to encourage a lifetime savings habit and most children who were born between September 2002 and January 2011 hold such an account.

These 6.3 million children have been barred under the system from being able to access Junior Isas, or Jisas as they are sometimes called, which are the successor tax-free children’s savings accounts to CTFs.

Competition to offer the most attractive deals has been concentrated around Junior Isas in recent years, leading financial experts to raise concerns for the children stuck in CTF deals suffering worse rates.

Parents wanting to switch from a CTF to a Junior Isa would not be allowed to keep both accounts running at the same time because of the tax advantages of these products. The annual subscription limit will be £4,080 for the 2015/16 tax year.

CTFs and Junior Isas have similar features in that both lock away cash until the child reaches adulthood.

A £250 sum paid into CTFs when they were first opened was eventually phased out and Junior Isas do not come with any government cash contributions.

Nearly one in four CTFs are “zombie” accounts which have not been contributed to since they were initially opened, according to recent research from savings provider Scottish Friendly.

Danny Cox, a chartered financial planner at financial services firm Hargreaves Lansdown, said: “Parents and grandparents of the six million or so children affected should review their CTFs.

“For many this will mean reminding themselves which provider they are with and who the registered contact is – planning ahead will avoid delays when transferring.”

He said that as the oldest children with a CTF will be aged around 12 and the first account maturities at the age of 18 will start in 2020, those who are happy to accept the ups and downs of the markets have sufficient time to invest in a stocks and shares Junior Isa, where the returns may possibly be better in the longer term than in a cash Junior Isa, if they want to.

Rachel Springall, a spokeswoman for financial information website Moneyfacts, said Junior Isas generally pay better rates and offer a greater choice of providers.

She said many people seem to have forgotten about their child’s CTF “so it’s great to see this new initiative come into play in the new tax year”.

Highlighting some examples of deals, she said that Halifax pays 4% on its Junior Isa, while Yorkshire Building Society has a top-paying CTF at a rate of 3%.

Ms Springall said: “Halifax requires parents to hold a Halifax Cash Isa to be eligible for the 4% Junior Isa, so If you don’t want to hold the adult Isa to get the best Jisa, then the next best is from Coventry Building Society at 3.25%, which is the same rate offered by Nationwide.

“It’s unknown how smooth the transfer process would be, but it is hoped it will be painless so parents can get higher returns for their child’s savings pot.

“Even if parents only ever invested £250 in a Child Trust Fund it is worth moving and it might give them a better incentive to save more knowing they are getting a decent rate.

“Jisa providers should take this opportunity to entice new customers to move to them because in recent years there hasn’t really been much movement with the Jisa rates.”

Published: Sunday 5th April 2015 by The News Editor

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