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Junior ISAs & Child Trust Funds (CTFs)

What are they?

Junior ISAsChild Trust Funds

Junior ISAs were launched on 1 November 2011. They're similar to conventional ISAs, with 3 key differences:

  • The annual contribution limit for 2016/17 is £4,080.
  • There is no restriction on how contributions are split between cash and stocks & shares.
  • Children are only able to hold one cash and one stocks & shares account at any time.

Unlike child trust funds, there is no government contribution. Junior ISAs are available to children who don't have a Child Trust Fund (CTF), although the Government has said it will allow CTFs to be transferred into Junior ISAs from April 2015, which makes a lot of sense.

How much are they worth?

Junior ISAsChild Trust Funds

As there are no government contributions, the value of a Junior ISA when a child reaches 18 depends on how much you and others pay in. The annual contribution limit is currently £4,080

The table below shows how much your child's Junior ISA could be worth when they turn 18 for a few common scenarios. Get a more detailed estimate using our Junior ISA 'How Much?' Calculator.

Monthly Saving3% Annual Return6% Annual Return
£25 £7,138 £9,570
£50 £14,276 £19,140
£100 £28,552 £38,280
£200 £57,104 £76,560
£250 £71,380 £95,703
£340 £97,079 £130,157
Assumes monthly saving over 18 and annual returns are after charges.

What are the investment options?

Whether you invest in a Junior ISA or CTF, the main decision is the same - cash or stocks & shares.

CashStocks & Shares

This is the simplest to understand, as it's basically a regular high interest savings accounts with the added benefit of tax-free interest.

Cash should prove safe place for your child's nest egg, though savings interest rates have historically struggled to return much more than inflation. So while you shouldn't lose money, don't expect to make that much over 18 years after inflation.

Candid Tip Shop around for the best interest rate, but beware 'introductory bonuses'. These can make the initial interest rate look attractive versus others at first, but less so once the offer period ends.

It's a good idea to check the rate of interest paid on your child's account at least once a year to ensure it remains competitive.

Can I switch?

Whilst children cannot get their hands on the money until 18, it is possible to transfer CTF and Junior ISA accounts from one provider to another. For example, you might wish to transfer if the interest rate or investment performance is poor compared to other providers.

Transferring is easy, you simply complete a transfer form for the new provider and they'll handle the rest. Just remember that your child can only ever have one CTF account or one cash and one stocks & shares Junior ISA.

What happens when the child is 18?

They can decide what to do with the money, so yes, there is a risk they could blow it all irresponsibly. The Government plans to allow maturing CTFs and Junior ISAs to be rolled into Individual Savings Accounts (ISAs), in an effort to keep the money invested, but there'll no obligation to do so.

The advice gap

While financial advisers are normally only too keen to court your business they are remarkably reticent when it comes to CTFs and Junior ISAs. The problem is that few CTFs/Junior ISAs pay them a commission (even if there is it'll be peanuts due to the small sum being invested) and if they were to charge you a fee for advice the fee could dwarf the amount being invested.

There's no practical solution, other than if you use an adviser for other matters then ask them to throw in the advice as a goodwill gesture.

CTF Jargon

Here's some of the more common CTF jargon you might come across:

Savings Account CTFA child trust fund that invests in a conventional type savings account.
Stakeholder CTFA child trust fund that has a cap on annual charges and rules on how the money is invested.
Stocks & Shares CTFA child trust that invests in stock markets, either individual shares or investment funds.
Top-Up PaymentsAnnual child trust fund contributions that may be made in addition to the standard voucher.
VoucherA voucher given to children born on or after 1 September 2002 to start their child trust fund. Initially at birth and again at age 7.