The rules that allow child trust funds (CTFs) to be transferred to Junior ISAs (JISAs) officially came into being last week, giving youngsters of all ages the chance to secure the most competitive child savings rates available.
CTFs have long come under fire for being uncompetitive. They initially seemed like a great idea – all children born between September 2002 and December 2011 were eligible, with the Government providing a £250 voucher (£500 for low income families) to kickstart the savings habit.
However, when Junior ISAs were launched in November 2011, the market for CTFs all but dried up. Providers would actively compete to secure JISA business but the market simply wasn't there for CTFs, which meant that rates on cash-based CTFs plummeted – and stayed there.
The rule stipulating that holders of a CTF couldn't open a JISA left millions of children stuck with accounts that paid poor rates of interest, while their younger siblings had the chance to secure far higher returns. Even children who didn't have a CTF but who were eligible wouldn't have been able to open a JISA. Happily, things have now changed.
The rule change means that holders of a CTF will be able to transfer the funds to a JISA. You still won't be able to have a JISA at the same time as a CTF, but you will be able to simultaneously open a JISA and instruct the transfer of a CTF, effectively closing the former, and largely obsolete, account.
It's opened the market to child savers who were previously locked out, and gives the potential for their savings to generate far better returns. The basic rules of JISAs and CTFs still apply – there's an annual investment allowance (you can save up to £4,080 in either account in the 2015/16 tax year), your child can't access the cash until they turn 18, and you're generally able to save in cash or some form of investment – and while there's no obligation to transfer funds if your child's CTF is performing well, chances are you could secure better returns with a JISA, especially if the CTF is cash-based.
Theoretically, the process of making the transfer should be fairly simple. The first thing to do is check the value of your child's trust fund, along with any penalties for making transfers – some CTFs, particularly investment versions, will levy charges on transfer, so it's worth weighing up the options.
Then, if you're ready to go ahead, find the JISA that you want to transfer the funds to (not all providers will accept CTF transfers, so make sure to check). Find the top cash JISA rates by heading to our best buy table if you're looking to save in cash, or if you want an investment JISA, research the market to find suitable providers, funds and the fees involved.
Once you've made your decision, contact the JISA provider and complete the application/CTF transfer form. This will include basic details of both the child and the parents/guardians, details of the CTF, and if appropriate, investment instructions. Return the completed form to the new provider, and they'll take care of everything else – the funds will be transferred and the former CTF closed, with transfers not expected to take longer than 30 working days.
REMEMBER: you won't be able to withdraw funds from the CTF yourself; you have to transfer the amount to the new JISA and close the old account. Once complete, the CTF will be closed, so you won't be able to switch back if you change your mind.
However, given that cash JISA rates are generally far better than their CTF counterparts, you probably won't change your mind anyway! Research the market to see what's out there, and you could soon be securing far better returns for your child.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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