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

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).

Rigid rules

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.

Losing interest

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.

Higher charges

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.

Verdict

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.

savvywoman.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Content Writer - Global Financial Services

    £25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

    Recruitment Genius: Web Developer - PHP

    £35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

    Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

    £15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: Loan Underwriter

    £18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

    Day In a Page

    A nap a day could save your life - and here's why

    A nap a day could save your life

    A midday nap is 'associated with reduced blood pressure'
    If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

    If men are so obsessed by sex...

    ...why do they clam up when confronted with the grisly realities?
    The comedy titans of Avalon on their attempt to save BBC3

    Jon Thoday and Richard Allen-Turner

    The comedy titans of Avalon on their attempt to save BBC3
    The bathing machine is back... but with a difference

    Rolling in the deep

    The bathing machine is back but with a difference
    Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

    Conservatives plot a motoring revolution

    Draft report reveals biggest reform to regulations since driving test introduced in 1935
    The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

    The Silk Roads that trace civilisation

    Long before the West rose to power, Asian pathways were connecting peoples and places
    House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

    The honours that shame Britain

    Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
    When it comes to street harassment, we need to talk about race

    'When it comes to street harassment, we need to talk about race'

    Why are black men living the stereotypes and why are we letting them get away with it?
    International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

    International Tap Festival comes to the UK

    Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
    War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

    Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

    Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
    Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

    'A subversive brothel keeper and Communist'

    Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
    Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

    BBC heads to the Californian coast

    The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
    Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

    Victorian fraudster who shook the Bank of England

    Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
    Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

    Car hacking scandal

    Security designed to stop thieves hot-wiring almost every modern motor has been cracked
    10 best placemats

    Take your seat: 10 best placemats

    Protect your table and dine in style with a bold new accessory