Children's savings accounts: Switching child trust funds to Junior Isas
Child trust funds were a popular way to save for your children. But poor rates and expensive investments have frustrated parents. Worse still, they hadn't been able to switch to more flexible Junior Isas.
That's all changed. From 6 April 2015, parents are able to transfer from child trust funds to Junior Isas if they want to find a new home for their kids' savings.
This guide explains how to transfer your child trust fund to a Junior Isa, and whether or not it's a good idea.
What are child trust funds?
Child trust funds were introduced in April 2005 to encourage long-term saving and give all children a financial boost when they reach 18. The government made a contribution of between £250 and £500 to child trust funds.
There were three options at the time:
Cash child trust funds - These are very similar to a cash Isa, whereby the interest earned on savings is paid tax-free.
Stakeholder child trust funds - These are accounts see your children's savings put into stock market investments. Stakeholder rules mean that charges are capped at 1.5% a year, and they have to be invested in a wide mix of investment types.
Shares-based child trust funds - These types of accounts allowed you to either pick an investment fund to put your children's savings onto the stock market, or pick your own investments.
What happened to child trust funds?
Child trust funds were discontinued in January 2011, and replaced by Junior Isas.
By this time, some interest rates on child trust funds had fallen, while the charges for investments were high compared to charges on Junior Isas.
On 6 April 2015, the government made it possible for people with child trust funds to switch to more flexible Junior Isas.
Find out more: Best Rate Junior Isas – get the best deal on your child’s savings
Why should I switch from a child trust fund to a Junior Isa?
There are a number of reasons why you should switch:
- Interest rates are higher in Junior Isas
- There are more Junior Isas in the market to choose from
- Many child trust funds don't allow new investments
- Junior stocks and shares Isas are significantly cheaper - you can expect to pay annual fees of between 0.5% and 1%, compared to 1.5% in share-based child trust funds.
- Junior stocks and shares Isas have a much wider choice of investments
How to transfer a child trust fund to Junior Isa
Before switching to a Junior Isa, it's important to check the value of the child trust fund you have, particularly for share-based child trust funds. It's also worth checking if there are any exit fees or guarantees that might be lost if you switch away.
From there, you'll need to choose your new Junior Isa provider.
- Best Rate Junior Isas - get the top interest for cash savings
- Stocks and shares Isa providers reviewed - read our reviews to right the best Junior Isa providers
Once you've found a new home for your kids' savings you'll need to do the following:
- Complete a Junior Isa transfer form, with your child's details and information about your child trust fund
- If you're opening a stocks and shares Isa, you'll need to specify where you want the money invested.
- Once you've submitted this to your new Junior Isa provider, it will carry out the switch for you.
- The switch should be completed within 30 days, and the child trust fund will be closed.
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