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 2023/24 is £9,000.
- 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 (JISAs) are available to children who don't have a Child Trust Fund (CTF) and CTFs can be transferred in to JISAs.
Child Trust Funds (CTF) were introduced by the Government on 6 April 2005 to give all children born on or after 1 September 2002 the potential for a tax-free nest egg
when they turn 18. However, due to spending cuts, CTFs were withdrawn for children born on or after 1 January 2011.
When available, children received a gift from the Government at birth (a further gift at age 7 was also promised, but scrapped due to spending cuts). The money must be held in a CTF account
until the child reaches 18. These gifts can be topped up with further savings by anyone on the child's behalf.
A range of CTF accounts are available, ranging from savings accounts to medium and high risk stock market funds and shares.
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 £4,368.
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 Saving | 3% Annual Return | 6% 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 |
£364 |
£103,932 |
£139,345 |
Assumes monthly saving over 18 and annual returns are after charges. |
Parents received a CTF voucher worth £250 shortly after they started receiving Child Benefit for their new born child, to be invested
into an approved CTF account. This fell to £50 From 1 August 2010 and was withdrawn altogether from 1 January 2011. Vouchers not invested within a year
are automatically invested it in a 'stakeholder' CTF.
The Government was due to top up CTF accounts by a further £250 when the child reached age seven, but this was scrapped from 1 August 2010.
Parents receiving Child Tax Credit (CTC) got a further £250 paid into their child's CTF account (£100 from 1 August 2010
and withdrawn from 1 January 2011) provided their household income was no more than the CTC threshold (currently £16,105) when Child
Benefit was first paid. This also applied to the Government top up at age seven until it was scrapped from 1 August 2010, provided income remained below the CTC threshold at that time.
Although the scheme has now been scrapped, anyone can make further contributions into existing CTF accounts subject to an overall limit of £9,000 a year.
The table below shows how much your child's CTF could be worth when they turn 18 for a few common scenarios (assumes vouchers at bith but NOT at age 7). Get a more detailed estimate using our
CTF 'How Much?' Calculator.
|
Government Vouchers Only |
Vouchers plus £9,000 annual top-up |
£250 vouchers |
£714 |
£295,553 |
£500 vouchers |
£1,427 |
£296,267 |
Figures assume an annual growth of 6.00% a year after any charges and £1,200 top up at beginning of each year. |
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.
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.
These accounts tend to invest in stock markets or corporate bonds through either funds (e.g. unit or investment trusts) or by buying shares directly. For a full list of permitted investments
see our ISA page.
Unlike cash, there's a risk your child could lose money. However, despite potentials ups and downs, over 18 years you would expect stock markets to deliver a better return than cash, so these
accounts can be well worth considering.
Tracker funds are a popular choice that tend to have a good record of beating the majority of 'active' fund managers, though you should bear in mind that tracker investments can be skewed
towards just a handful of the largest companies. For more info covering these arguments read the Candid Money guide to tracker funds
here.
CTFs can be stakeholder or non-stakeholder, with stakeholder offering 2 key benefits:
- Once your child is 13 the money is then automatically moved towards safer investments, such as corporate bonds and cash, increasing safety as your child approaches 18.
- There are no initial fund charges and annual charges cannot be more than 1.5%.
A few CTF providers offer 'self-select' non-stakeholder CTFs, allowing you select pretty much any share or fund that you want. However, charges are such that they're
not practical unless you're topping up the CTF with at least a few hundred pounds a year.
If you're keen on investing and happy to manage risk yourself then you'll probably find more here to please you compared to stakeholder, but beware extra potential
costs and risks.
For more guidance on investing take a look at the Candid Money investment section.
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 CTF | A child trust fund that invests in a conventional type savings account. |
Stakeholder CTF | A child trust fund that has a cap on annual charges and rules on how the money is invested. |
Stocks & Shares CTF | A child trust that invests in stock markets, either individual shares or investment funds. |
Top-Up Payments | Annual child trust fund contributions that may be made in addition to the standard voucher. |
Voucher | A 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. |