April 6th witnessed new legislation which allows parents to transfer money stored in a Child Trust Fund to a more attractive Junior ISAs.
Before the changes, over six million youngsters had money stored in Child Trust Funds. Junior ISAs offer a much greater range of products to choose from, better returns on the investment and lower overall charges.
At present, the interest on CTFís can drop as low as 1% whereas Junior ISAs can offer as much as 4%. It is therefore definitely worth searching the market in order to find the most lucrative deal. If you are considering switching, there are number of important things that you need to know.
Child Trust Funds were introduced by Labour and were essentially designed for those children born between September 1 2002 and January 2 2011. The scheme meant that every child born in this period received at least a £250 starter voucher from the Government. However, the funds were abandoned four years ago and Junior ISAs were introduced instead.
The building societies Coventry and Nationwide offer some of the most competitive rates for Junior ISAs at 3.25%. Further to this, Halifax gives out an even better 4% on the condition that the adult overseeing the account has a cash ISA with Halifax.
The best rate offered on the market for a CTF is 2.65% with establishments such as Britannia offering just 1.05%. They money held in both CTF schemes and Junior ISAs cannot be accessed until the child is 18.
Before the introduction of the new legislation, people with money in a CTF could not switch to a Junior ISA or put any other money into one. However, under these new rules, one is able to transfer from a CTF once they have pre-arranged it with the necessary bank. A holder is not allowed to possess both a CTF and a Junior ISA account meaning parents are required to convert the entire account into stocks and shares or cash if they want to switch.
The Treasury have said that the providers of Child Trust Funds cannot turn down a request to transfer the full amount to a Junior ISA. However, there is a slight concern that the new rules will mean the CTF providers no longer meet an adequate standard of service to their existing customers now looking to switch. There is therefore a facility in place to process any complaints about the quality of service as well as the Financial Conduct Authority to regulate the market and maintain a fair level of competition.
The Treasury also informed that it should take a maximum of 15 days to move from a CTF to cash ISA accounts and up to 30 days to transfer to non-cash ISA facilities.
The failure of Child Trust Funds is pertinently illustrated by the research of Scottish Friendly, the savings and investment service. They collected data showing that just below one in four Child Trust Funds were effectively ìzombieî accounts that have had no money put into them subsequent to the initial opening amount.
Danny Cox who works at Hargreaves Lansdown as a financial planner stated: ìParents and grandparents of the six million or so children affected should review their Child Trust Funds. 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.î
Mr Cox went on to advise that because the oldest children with a Child Trust Fund will not have access to the money until 2020, there is plenty of time to transfer into a stocks and shares Junior ISA as long as they are willing to ride the capricious fluctuations in the stock market. This may be end up being more lucrative than a cash Junior ISA.