Should you switch your Child Trust Fund to a Junior Isa?

For the past 10 years it's been possible to switch a Child Trust Fund (CTF) to a Junior Isa (Jisa). So why have millions of parents and young savers not moved their cash over?

CTFs were scrapped in 2011 and replaced with the Jisa, which offers similar tax-free savings and often higher returns. It's been possible to switch a child's CTF to a Jisa since 2015, but the latest HMRC data shows there are 4.2m funds that are still open.

Read on to find out how much interest these young savers could be missing out on and what other ways you can build a nest egg for your child.

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What are child trust funds?

An estimated 6.3m CTFs were set up between 2002 and 2011 to encourage young people to become future savers. If a parent or guardian was unable to set up an account for their child, HMRC opened an account on the child’s behalf. All deposits were tax-free. 

Anyone – parents, family and friends – can pay in up to £9,000 a year. Once the child turns 16, they legally take over responsibility for the account and make decisions about the fund. However, they can't withdraw any money until they turn 18.

If nothing is done with the money, the CTF provider will either transfer it to an Isa - if it offers one - or transfer it into a 'protected account' until the account holder gives further instructions. It will remain tax-free. 

Should you open a Junior cash Isa instead?

CTFs and Jisas both allow you to save up to £9,000 a year tax-free. The big difference, however, is that Jisa savings rates tend to be higher, and the choice of providers is much wider.

The downside is that many of the top-rate accounts on the market are from building societies that impose restrictions on opening, based on location.

For an idea of the top rates currently available with Junior cash Isas, take a look at the table below:

Currently, the best rates for a Junior cash Isa are with Bath Building Society or Beverley Building Society. However, these accounts are restricted to people who live in those areas.

If you're not a local, you can still find attractive rates. Coventry Building Society and Nottingham Building Society both give returns of 4.25% AER, while Loughborough Building Society has a 4.15% deal.

• Find out more: best Junior Isas 2025

How much better off could you be?

Current Junior cash Isa rates are far higher than some CTFs. One Family's cash CTF, for example, pays just 3% AER. But how much more savings income do you stand to make by switching?

The youngest child to have had money paid into a CTF by the government was born on 1 January 2011, so is 14 today. That means they have four years left until the account matures.

Now let's say you switched today to a Junior cash Isa paying the market-leading rate of 4.89% AER. If you invested £5,000, your child will have made £1,077 in interest by the time they turn 18. That's compared to £636 with a CTF paying 3%.

Investment Jisa returns are also higher

Again, there is much greater choice of investment Junior Isas than with CTFs. The former tax-free accounts also have lower annual fees, and that can make a huge difference to the final returns. 

Sarah Coles, head of personal finance at Hargreaves Lansdown, calculated what the investment income would be if you take compounding into account. In other words, the returns you get on the returns you've previously made.

She found that if you have £1,000 invested, growing at 5% a year for 18 years, someone with a CTF that charges 1.5% a year could end up with £1,857. Someone in a Jisa that charges 0.2% a year could have £2,325 – £468 more. 

An investment Jisa is also a good option for savers whoa are happy to play the long game. Investments can go up and down, but keeping money invested over the long term can help ride out dips in the markets and can mean higher returns compared to leaving money in a cash account.

A cash Junior Isa may have a high rate today, but remember that interest on these accounts was pitifully low for years before 2023. To get an idea of how volatile cash savings interest can be, look back at May 2022 when the base rate was just 1%. The a.verage rate on a Junior Isa on 25 May 2022 was a measly 1.83% AER.

• Find out more: best investment Junior Isas 2025

What's stopping parents and teens from switching?

According to the latest HMRC data, there were around 4.2m CTF accounts open on 5 April 2024, of which around 671,000 were accounts held by over-16s that continued as CTFs. 

There are a couple of reasons why people are failing to take advantage of higher earnings with a Jisa. For some, it just feels easier to pay into the account they already hold than to transfer it elsewhere. 

In other cases, it's because parents have forgotten all about these accounts, so don’t know they could benefit from a switch.

If you didn't realise you had a CTF or forgot the account details, you can track it down by asking HMRC to find the provider. To do this, you'll need to follow these steps. You'll also need to have set up a Government Gateway account.

How else can children save? 

If you've used up your child's tax-free options or you want to access the money before they turn 18, banks and building societies also offer non-Isa savings accounts for children.

Children can open most of these accounts themselves from age seven, so it's a great way to get them involved.

Watch out for catches, such as introductory bonuses, limits on withdrawals, maximum or minimum account balances, and investment charges (if you opt for a stocks and shares account).

Providers often offer free gifts such as a piggy bank, but don't be distracted – focus on getting the best return – and check on the progress at least twice a year.

You could also consider investing in premium bonds, traditional investments, or even saving for your child in a pension.

• Our guide on the best ways to save for your children's future shows the pros and cons of each of these options.