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Lloyds launches new Junior Cash Isa

Bank supports call to end CTF restriction

Junior Isas are the new tax-free way to save for children. You can pay in up to £3,600 a year.   

Lloyds TSB’s Junior Cash Isa will pay a market-leading 3%. Availability is currently restricted by HMRC rules but the bank has called for these to be lifted. 

First banks to offer a Junior cash Isa

Lloyds TSB and fellow Lloyds Banking Group member Bank of Scotland are the first high-street banks to offer Junior cash Isas. From 13 February 2012, both will offer accounts paying 3% tax-free – equalling the current market leaders, Beverley Building Society and Buckinghamshire Building Society. Until now, Junior cash Isas, which were introduced in October 2011, have mainly been offered by building societies. 

Greg Coughlan, head of savings for Lloyds TSB, said: ‘Saving for a child’s future is increasingly important as more and more young adults are becoming reliant on their parents to fund some of the most basic costs of living. The Junior ISA allows parents to set aside money throughout their child’s life in a tax efficient way, building that all important nest egg which could either help fund their university education or help them take that first step on the property ladder.’

Child Trust Fund concern

Junior Isas have replaced Child Trust Funds (CTFs) as a tax-free way of saving for children. CTFs were offered to all children born between 1 January 2002 and 3 January 2011. The government made an automatic contribution to these accounts, opening a stocks and shares CTF for children whose parents failed to indicate a preference between this and a cash CTF. 

Around 6m children currently have CTF accounts, which cannot be accessed until they are 18 years old. Although no new CTFs can now be opened, it is possible for those who hold one to transfer to another provider, or move from a cash CTF to a stocks and shares CTF. 

Which? research has found that Junior cash Isa rates are generally better than those paid to cash CTFs. The two biggest building societies offering Junior cash Isas, Nationwide BS and Skipton BS are paying higher rates on these than their Child Trust Fund. Nationwide BS offers 3% (2.1% excluding bonus) on its Smart Junior Isa and 2.1% (1.1% excluding bonus) on its Child Trust Fund. 

Skipton BS is also paying 3% on its Junior Cash Isa, but just 2.65% on its CTF. For this reason, we have argued that current CTF holders should be free to transfer to Junior Isas, shopping around for the best rates on the market. 

Lloyds Banking Group shares our concern that the current rules restrict savers’ choice. Commenting on restricted access, Mr Coughlan said: ‘In order for all parents to get the maximum choice of deals, the government needs to urgently review its policy of restricting access to the Junior ISA for those that were eligible for a Child Trust Fund.’ 

More on this…

  • Junior Isas reviewed – compare Junior cash Isa rates
  • Child Trust Funds reviewed – how cash CTF rates compare
  • Which? Money Helpline– to find out more about saving for children
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