If your child was born between 1 September 2002 and 2 January 2011, the government gave you a £250 voucher to save into a child trust fund (CTF) for your child. The idea was that you would invest it, add to it, and then by the time your child turned 18, they’d have a nice little lump sum to play with – well, we don’t mean literally play, but to use sensibly, like university, a new home, or maybe to get married.
From CTFs to Junior ISAs
As far as the government was concerned, parents weren’t very good at saving for their children, and the CTF initiative was put in place to kickstart the savings habits. But then the government decided it didn’t want to give newborns a cash sum of £250 and closed CTFs. However, it did want to encourage savings for children, so the government introduced junior ISAs instead (but without the free cash) – a dedicated home for your children’s money.
But as usual, the change in policy came with red tape, meaning parents who had CTFs couldn’t move the money into a junior ISA. This tape was finally cut in April 2016, meaning parents with CTFs could have a junior ISAs. And yet many parents decided to stick to their CTFs — existing holders can continue to pay into them. But as junior ISAs took off, companies managing CTFs decided they weren’t worth the effort and CTFs soon became known as zombie funds.
Junior ISAs meant more choice, lower fees and funds that asset managers cared about, unlike Zombie CTFs, where returns were beginning to slow down or drop, and the fees attached to them remained high.
Anyone stuck with a CTF is almost certainly getting a poor deal.
Switch now!
With CTFs closed for some years, anyone still paying into them should take a look at switching. Some parents have already noticed a significant drop in value, and if you do nothing, you could end up with an empty or low value pot for your child. However, not all junior ISA providers will allow CTF transfers, so check first. When you have decided to switch, contact your CTF provider and get the relevant forms. There should be no cost associated with moving accounts and you will not lose your free £250 – although there is a risk that it will not be worth the same now if you have been inactive with your CTF.
You cannot have both a junior ISA and a CTF. You will get more choice with Junior investment ISAs, but as always, keep a look out for annual fund management charges. You should look to pay no more than 0.5% to 1%. Avoid High Street banks, and instead look to invest with specialist firms known for investing. If your child is still very young, investing is likely to be the best options for stronger returns, although of course there is always risk.
Once you have a Junior ISA is place, keep an eye on the performance and don’t be afraid to switch if you feel unhappy, but remember that investing is for the long term.
Can’t find your CTF?
Visit the HMRC website.
Photo by Amy Treasure on Unsplash
