Savvy Money: Sorting out junior savings mess ought to be child's play
Solve the confusion by allowing transfers into Junior ISAs from their obsolete predecessor
Saturday 16 March 2013
The pressure is on Chancellor George Osborne to deliver a Budget that can stimulate the economy. But, among all the technical tax changes and macro-economic measures – I hope he also finds time to change the rules on Child Trust Funds, so they can be merged with Junior ISAs.
Child Trust Funds
Why? Well, if you're not a parent, the current – and clearly quite bonkers set of rules – may have passed you by. So, here's a recap.
The Labour government introduced Child Trust Funds (a tax-free savings and investment account) for children born from September 2002 to encourage parents and children to save, and around six million children have them. The main incentive was the £250 voucher given to parents to open the accounts.
Against the austerity backdrop, the coalition abolished Child Trust Funds in 2011 and introduced their replacement, the Junior ISA, later that year (minus the £250 freebie).
The problem is that children who have a Child Trust Fund can't also take out a Junior ISA; Child Trust Funds – like Junior ISAs – lock the money away until the child is 18, so they can't be cashed in early, and parents can't transfer money from a Child Trust Fund into a Junior ISA if they want to get a better return.
The Government made a halfhearted effort at joined-up thinking when Junior ISAs went on sale, equalising the amounts that could be saved into accounts every year (at the planning stage the limits were £1,200 for Child Trust Funds and £3,000 for Junior ISAs). But it didn't finish the job.
We know that banks, building societies and investment companies don't have the best track record when it comes to rewarding loyalty. Many would rather chase after shiny new customers than try and retain the ones they have by offering a decent return. And, to be fair to Child Trust Fund providers, these products can be expensive to run. That means Junior ISAs can pay better interest rates or offer better returns than Child Trust Funds.
For example, Nationwide's cash Junior ISA pays 3.25 per cent, including a bonus, but its Child Trust Fund pays 2.1 per cent, and the best-paying cash ISA from the Halifax (offering 6 per cent interest if the parent has at least £1 in an adult cash ISA with the Halifax) is significantly higher than anything you can get from a cash Child Trust Fund.
And while parents can switch between CTF providers, many aren't aware that they can do this and some providers that offer the best rates have banned transfers in.
It's not just that the interest rates can be low. Charges on CTFs tend to be higher. You can pay up to 1.5 per cent for a basic tracker fund if it's sold in a CTF wrapper.
Only last month, fund management firm F&C said it would start charging Child Trust Fund holders in its non-stakeholder funds a £30-a-year flat fee from 6 April. Parents who don't want to pay this charge will either have to move their child's money to F&C's stakeholder account or switch to another provider.
F&C isn't the only provider to impose a flat fee charge – Witan's Jump Child Trust Fund introduced a £36 annual charge around a year ago.
Merging accounts makes sense
Letting parents switch CTF money into Junior ISAs or allowing providers to merge these accounts is an obvious step. I'm resisting the temptation to say it's "child's play", but it seems like such a no brainer I don't know why the Government hasn't done it already. It wouldn't cost them anything and it could breathe a bit of life into the children's savings market.
Changing the rules would certainly go down well with parents. I carried out a poll on my website where around 95 per cent of voters said they thought they should be able to transfer existing Child Trust Funds into Junior ISAs. I've also had emails from parents who are frustrated that they end up with a mix of ISAs and trust funds with different providers.
The Government should change the rules as soon as it can so Child Trust Funds can be switched to Junior ISAs. The Treasury recently told me this was "under review". If it misses this opportunity, the Government will demonstrate that it has some pretty basic lessons to learn about how to encourage parents – and children – to see the benefits of saving.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Amy Winehouse statue unveiled in Camden
- 2 Lego breaks out of the toy box and heads for the gallery
- 3 George Galloway on Scottish independence: The political class is doing what Hitler couldn’t – destroying Britain
- 4 Headaches, fry ups, and hair of the dog - why do we get hangovers, and is there such thing as a 'cure'?
- 5 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
Daniele Watts: Django Unchained actress detained in Los Angeles after being mistaken for a prostitute
George Galloway on Scottish independence: The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
Scottish independence: Britain faces 'constitutional crisis' at next election
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
iJobs Money & Business
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...
Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)
£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony