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
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Trainee Consultant - Surrey/ South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    Recruitment Genius: Claims Administrator

    £16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

    Recruitment Genius: Senior SEO Executive

    £24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

    Day In a Page

    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power
    Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

    The price to be paid for challenging the rule of extremists

    A revolution now 'consuming its own children'
    Welcome to the world of Megagames

    Welcome to the world of Megagames

    300 players take part in Watch the Skies! board game in London
    'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

    Charlotte Gainsbourg on 'Nymphomaniac'

    Starring in one of the most explicit films ever
    Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

    Robert Fisk in Abu Dhabi

    The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
    Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

    Vince Cable exclusive interview

    Charging fees for employment tribunals was 'a very bad move'
    Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

    Iwan Rheon is returning to his Welsh roots

    Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
    Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

    It's time for my close-up

    Meet the man who films great whites for a living
    Increasing numbers of homeless people in America keep their mobile phones on the streets

    Homeless people keep mobile phones

    A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before