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Posted in: Finance Last updated: 22 Apr 2015

Child Trust Fund & Junior ISA

Our guide to some of your options

New regulations have come into play that allow the transfer of Child Trust Funds (CTFs) into Junior ISAs (JISAs). Anything that gives families more options as to how they invest their children's savings can only be positive. We welcome parents being able to make this choice, and have put together this quick guide of some things to consider when comparing your options.

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Some differences to consider

Both Child Trust Funds and Junior ISAs are tax efficient, have an annual contribution limit of £4,080 and, once set-up, allow other people to pay into the account. While these are similar products, some of the differences are detailed below.

Stakeholder
Child Trust Fund

  • Most people have a 'stakeholder' Child Trust Fund which is invested in the stock market. Here are some features of a stakeholder Child Trust Fund which you might want to consider before transferring your account.
  • Stakeholder child trust funds, like the one from OneFamily, have to accept top ups into the account from as little as £10.
  • The charge for running a stakeholder Child Trust Fund is capped and cannot be increased at any time throughout the life of the account.

or

Stocks & Shares Junior ISA

  • The most comparable product to a stakeholder Child Trust Fund is a Junior ISA invested in the stock market. But there are some important differences:
  • Junior ISA providers set their own limits on minimum premiums into the account, so can set higher minimum payments. They can also set their own limits on accepting transfer balances.
  • Though there are plenty of good value Junior ISAs, such as the one provided by OneFamily, providers do not have to cap their charges and are free to change them at any time.

No matter which type of account you choose, both can be used to invest for a child's future and help give them the best start in adult life. Please note, this is general information about these products, and individual product features may vary by provider and individual account. The tax treatment of Child Trust Funds and Junior ISAs depends on individual circumstances and may change in the future. Cash Child Trust Funds and Junior ISAs are also available, however providers are not obliged to provide them.

Cash Child Trust Funds and Junior ISAs are also available, however providers are not obliged to provide them.

Stocks & Shares

   Dec 2009-Dec 2010 Dec 2010-Dec 2011  Dec 2011-Dec 2012   Dec 2012-Dec 2013  Dec 2013-Dec 2014
FBIF Share Class A1 (Junior ISA)  10.8% -5.3%  8.4%  12.2%  4.6%
Family Investments Child Trust Fund  11.4% -6.9%  8.9%  18.1%  2.0%
FCET2 (Ethical CTF & Ethical JISA)  9.0% -5.8%  9.8%  18.1%  0.8%

Please remember

Investment values can fall as well as rise, and that the child may get back less than has been paid in. Past performance is not a guide to future performance and should not be used on its own to make an investment decision.

The figures in the table above include all fund charges. There may be other charges deducted directly from the investment, which will not be included in the figures above.

1 Family International Balanced Fund
2 Family Ethical Charities Trust

Past Performance

While we can't comment on the performance of other providers' products, both the Family Investments Child Trust Fund and Junior ISA, which was introduced in November 2011, have seen growth over recent years.

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Cash or Stocks & Shares?

If you're thinking about transferring your child's Child Trust Fund into a Junior ISA, you'll most likely have a choice to make: cash, stocks and shares or split funds between the two.

Cash

Interest rates set by each individual provider.

Some providers may offer attractive rates, however if the rate is not fixed, it could change at any time.

Cash offers less exposure to risk than stocks and shares.

junior-bond_illustration_money_284x175The effects of inflation can exceed interest earned and reduce the amount that the child could buy with the money in the future.





Stocks & Shares

The growth rate depends on the fund the Junior ISA invests in, and would be expected to vary over time depending on the performance of the investments in the fund.

May have the potential for greater growth than cash over the longer term. Generally over every 18 year period for the past 30 years, stocks & shares have outperformed cash accounts*. Of course, past performance is no guarantee of future performance.

Investments in stocks and shares can go down as well as up, so your child may get back less than is paid in.

If the growth earned exceeds inflation, the money will be able to buy at least as much in the future as it would today.

*Source: Barclays Equity Gilt Study 2015

Frequently asked questions

Are Child Trust Funds obsolete now you can transfer them into Junior ISAs?
No. Family Investments Child Trust Funds have seen overall growth over the past five years, as can be seen in the table above. Although please remember, past performance is no guarantee of future performance. Regardless of the change in law, those with a Child Trust Fund will continue to be able to invest as they always have done.
My child already has a Child Trust Fund - do I need to do anything?
No. Those with a Child Trust Fund will be able to invest as they always have done. We are fully committed to providing Child Trust Fund customers with high levels of service.
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Note: Whilst we take care to ensure Hub content is accurate at the time of publication, individual circumstances can differ so please don't rely on it when making financial decisions.