Before deciding whether to transfer a child trust fund to a Junior ISA, knowing the difference between the two savings platforms is important. The decision to transfer CTF to JISA can offer several benefits, including access to a wider range of investment options and potentially lower fees and both are ways of saving or investing for children long-term. At first glance, the two have many similarities, but before you ask yourself, ‘Can you transfer a child trust fund to a Junior ISA?’, there are some differences you need to be aware of.
| Is a Child Trust Fund still available? | Unfortunately, the Child Trust Fund was discontinued in November 2011 |
| Can I transfer a Child Trust Fund to a Junior ISA? | Yes, you can |
| Is there a deadline for switching from a CTF to a JISA? | No, there is no deadline |
| Can I continue to contribute to the JISA after the switch? | You can continue JISA contributions after you transfer Child Trust Fund to Junior ISA |
What is a child trust fund?
Child Trust Funds (CTFs) were first launched in 2005. They were made available for children born in the UK between the 1st of December 2002 and the 2nd of January 2011. The reason for the relatively short lifespan is that CTFs were replaced by Junior ISAs in November 2011 and are no longer available.
A Child Trust Fund is a tax-free savings/investment account. When it was first set up, it was subject to an initial award of £250 from the UK government upon the birth of the child and a further £250 when the child turned six.
Accounts could be set up by an adult with parental responsibility. This adult was known as the Registered Contact and was legally responsible for acting on behalf of the child to ensure the account was correctly invested and operated. The account itself remains with the CTF provider.
Child Trust Funds were available in 3 options:
- Cash CTFs – containing only cash savings.
- Stakeholder CTFs – holding savings in the form of stock market investments.
- Shares-based CTFs – where the registered contact can choose to pick an investment fund or put the savings into their choice of stocks and shares.
All deposits within the £9,000 per annum limit and any gains made by the accounts are tax-free. Although you can no longer set up a new Child Trust Fund, you can continue to make contributions up to the £9,000 annual limit.
What is a JISA?
A Junior ISA (JISA) is a tax-free savings account for children under 18 who are UK residents. It is one of the types of ISAs, and the JISA was introduced in November 2011 by the UK government. It is similar to a CTF in that it allows family and friends to contribute to the child’s savings, but it does not come with a government award.
Only the child’s parent or legal guardian can open a Junior ISA. They are responsible for choosing a portfolio from a wide range of investments and managing the account until the child turns 16. Anyone can contribute to a Junior ISA, and the maximum amount you can contribute is £9,000 per tax year.
Access to funds in Junior ISAs is the same as that in a Child Trust Fund. The child who owns the account can take control of their Junior ISA when they turn 16 and have access to the funds once they are 18 or older. At age 18, the junior ISA is converted to an adult ISA.
A Junior ISA has 2 investment options:
- Cash Junior ISA: contains only cash savings and is equivalent to a child’s savings account.
- Stocks and share Junior ISA: where the registered contact can choose to pick an investment fund or put the savings into their choice of stocks and shares.
What is the difference between a JISA and Child Trust Fund?
Here are the main differences between a Junior ISA (JISA) and a Child Trust Fund (CTF).
Eligibility: Child Trust Funds were available to children born between 1 September 2002 and 2 January 2011, while Junior ISAs are available to all children under the age of 18 who are UK residents.
Government contributions: Junior ISAs do not offer government contributions, while Child Trust Funds have a £250 or £500 government contribution when a CTF account is opened.
Investment Options: CTFs have two main options: the Cash Child Trust Fund option and the shares-based Child Trust Fund option. There is also the Stakeholder child trust funds option. On the other hand, Junior ISAs offer two investment options: a cash Junior ISA and a stocks and shares Junior ISA.
Transfers: Junior ISA transfers between multiple providers are easier than with a CTF. Also, you can transfer a Child Trust Fund to a Junior ISA but not vice versa.
Fees and Interests: Junior ISAs generally have lower fees and earn more interest than CTFs. So, the money in a Junior ISA has more growth potential than a CTF.
Conversion: When the child turns 18, money can no longer be added to a Child Trust Fund, while contributions can still occur with a Junior ISA when the child turns 18. However, money held in a Child Trust Fund or Junior ISA can be converted to an adult ISA. A cash CTF can be converted to a cash ISA and a shares-based CTF can be converted to a stocks and shares ISA.
Reasons to consider transferring your child’s trust fund to a Junior ISA?
You’ll be pleased to know that when you transfer a Child Trust Fund to a Junior ISA, rather than the three different types of CTF, JISAs only come in two forms – a Cash JISA or a Stocks and Shares JISA. So, from that point of view, knowing how to transfer a Child Trust Fund to a Junior ISA is a little easier. In fact, the whole transfer process is quite easy.
When you are considering, ‘Should I transfer a Child Trust Fund to a Junior ISA?’, here are four points that could help you to make up your mind:
- Generally, they have lower fees.
- You can keep all your family’s accounts in one place.
- You have a wider choice of investment options.
- You can save money regularly from as little as £25.
All the above points are advantages of transferring a CTF to a JISA. However, before initiating a Child Trust Fund transfer to Junior ISA, it’s important to compare both accounts’ features, fees, and interest rates. Also, you need to be aware that closing a CTF may involve a cancellation fee. Any cancellation fee can easily be outweighed by the benefits of such a transfer, but obviously, this depends on the stage at which the transfer takes place.
Even though both CTFs and JISAs offer tax-free savings, it is important you pick the best ISA for a baby that suits your financial goals when transferring a Child Trust Fund to a Junior ISA.
How do I transfer a Child Trust Fund to a Junior ISA?
Transferring a Child Trust Fund to a Junior ISA is a straightforward process designed to help you maximize your child’s savings. If you’re wondering, “Can I transfer Child Trust Fund to Junior ISA?” the answer is yes. Here’s a step-by-step guide on how to change Child Trust Fund to Junior ISA:
Choose a Junior ISA Provider: The first place to start with a Child Trust Fund transfer to a Junior ISA is to open a JISA that meets your investment goals and offers competitive interest rates or investment options. As mentioned above, you can choose from one of two types, not three. To help you make the best choice, comparing the various Junior ISA providers is important. There are several platforms around, like Moneyfarm.
Once you’ve carried out your research into which is the best provider, all you need to do is to tell them how much you wish to transfer from the CTF. If you’re going to opt for the Stocks and Shares JISA, tell the provider which risk level you fall into.
Contact Your CTF Provider: Inform them of your decision to move the Child Trust Fund to Junior ISA. They will provide you with the necessary paperwork, which will vary slightly from provider to provider. Completing it ensures that all the tax benefits will be carried forward. You can see a sample of this type of form at the bottom of this page on the GOV.UK website.
Complete the Transfer Form: Fill out the JISA transfer form from your new provider. This form will ask for details about the existing CTF to facilitate the CTF transfer to Junior ISA.
Await the Transfer: Once you’ve submitted all the required forms, the transfer process will begin. The CTF to JISA transfer can take several weeks to complete.
Understanding how to transfer CTF to Junior ISA is the first step in potentially enhancing your child’s savings. By carefully considering the benefits and conducting thorough research, you can make an informed decision that aligns with your financial goals for your child’s future.
Please note: Although a Child Trust Fund and Junior ISA are two different things, a child cannot have both. So, if you decide to transfer a Child Trust Fund to a Junior ISA, you must shut down the CTF.
Does a CTF affect the benefits of the registered contact?
Registering a Child Trust Fund did not affect the benefits of the registered contact. Similarly, it does not affect the benefits of anyone else contributing to the CTF as the money is held in trust for the child.
A summary of the six Child Trust Fund need-to-knows.
- Up to £9,000 per annum can be saved tax-free.
- Any gains made by the accounts are also tax-free.
- You can change CTF providers.
- The young person can take control of the CTF on his or her 16th birthday.
- A child can withdraw funds from the CTF after his or her 18th birthday.
- A child is not permitted to have a CTF and a Junior ISA running concurrently.
There are two significant reasons to transfer a Child Trust Fund to a Junior ISA (JISA).
- A JISA is cheaper to set up and operate.
- A JISA earns more interest.
If you do decide to change a Child Trust Fund to a Junior ISA, your next question will probably be, “how do I go about it? – so, that’s the next topic up for discussion.
Have you got a CTF you didn’t know about?
It is thought that somewhere around 1.8 million CTFs have been lost. There are several reasons for this, including:
- HMRC initiated a CTF because the parents failed to do so when they received the child’s £250 award from the government.
- Families move home and sometimes lose touch with the CTF provider.
If you think you have lost a CTF, you can contact HMRC, who will conduct a search. If an account is tracked down, you will be able to re-contact the CTF provider and regain control of the account. Click here for more information.
Also, for children who have spent time in care, the Share Foundation can assist. They claim to administer approximately 16,000 CTFs worth £1,884 on behalf of children in care.
Junior Cash or Junior Investment ISA?
You can transfer funds from a Cash CTF to a Stocks and Shares JISA. Stocks and shares Junior ISAs are a type of children’s investment fund, and there is no doubt that, on average, the interest a Stocks and Shares Junior ISA makes outweighs the interest that Junior Cash ISAs make significantly. However, investing in stocks and shares always involves an element of risk, so it depends on how risk-averse you are.
If the child whose name the account is in is old enough, you might choose to discuss it with him or her. You should also bear in mind that from 16 years of age onward, the child is able to manage the account themselves, in which case they should have the final say. If needed, he or she can discuss the pros and cons of the transfer of their Child Trust Fund to a Junior ISA investment account directly with the JISA provider.
FAQ
Can I switch from a Junior ISA to a Child Trust Fund?
No, switching from a JISA to a Child Trust Fund (CTFs) is impossible, as CTFs are no longer available to new account holders.
Does transferring a Child Trust Fund to a Junior ISA affect the tax-free status of an ISA?
No, a Child Trust Fund transfer to Junior ISA will not affect the tax-free status of a children’s ISA.
Why should I transfer a Child Trust Fund to a Junior ISA?
There are several benefits associated with a child trust fund transfer to a Junior ISA. They include a wider range of investment options, lower charges, and potentially higher interest rates.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
