From 6 April, parents of children with a Child Trust Fund (CTF) have been able to transfer the accounts to a Junior ISA. This recent change could enable over six million children aged between 4 and 12 to achieve better returns, pay lower charges and have a greater choice of investments.
The opportunity for parents to transfer CTFs to Junior ISAs has been popular - we’ve already received many requests from parents looking to take advantage of the new freedoms by transferring to the Vantage Junior Stocks & Shares ISA. A CTF transfer will not count as a new subscription to the Junior ISA, so once transferred further subscriptions can be made to the child's Junior ISA as per the allowance each tax year, £4,080 in the 2015/16 tax year.
Ruth Richards, from Hargreaves Lansdown's retirement team, explains why she has chosen to transfer her son’s CTF to a Junior ISA.
No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.
Q: What was your experience of Child Trust Funds?
A: They were great when they started. The account allowed me to save tax-efficiently for my son and we also received a £250 voucher from the government. I chose to set up my son’s CTF with the market leader at the time. They had a low cost FTSE All Share Tracker fund available which has performed fine.
However, I began to get frustrated with the clunky online access of the company I was using and the lack of regular update about my son’s account. The company used to prompt me to top up the account just before my son’s birthday, but stopped doing this a few years ago. I felt things went downhill once CTFs were replaced with Junior ISAs as with a limited number of companies offering CTFs, there was little incentive to keep the accounts competitive.
Q: Why did you choose to transfer your son’s CTF to the Vantage Junior ISA?
A: CTFs have had their day for me - I wanted an account that was going to give me more investments to choose from and allow me to manage my son’s savings more easily. With the linked account facility on Vantage, I can manage my son’s CTF at the same time as checking my own portfolio which makes life easier.
The costs are also lower in the Vantage Junior ISA. The FTSE All Share tracker fund offered by the CTF provider had a total annual cost of 0.72% whereas if I were to invest in the Legal & General UK Index fund in the Vantage Junior Stocks & Shares ISA, the total annual cost is only 0.51% (which includes Hargreaves Lansdown’s 0.45% annual administration charge). Over time, lower charges should help improve the returns. Find out more about our charges.
Q: What is your investment strategy when investing for your child?
A: I can take a long-term view as I have at least ten years before I will want to start reducing risk, if at all. This means I can select more adventurous investments such as equities which have a greater chance of beating the returns on cash over time, although I understand there are no guarantees and I could get back less than I invest. I’m currently deciding where I’d like to invest. I will probably either invest in a Multi-Manager fund, or select a UK equity fund run by an experienced fund manager, such as Neil Woodford.
I intend to keep paying in a regular monthly sum to build up the investment gradually. Paying in regularly means I spread the risk of getting the market timing wrong - if prices fall in any one month, I simply buy more units or shares for the same amount of money.
Q: How do you think your son will use the money you’ve saved?
A: Hopefully he will use it sensibly - I think it’s important children are made aware of the value of money and savings. I would hope the money might go towards a house deposit, travelling or something special rather than just being spent.
How to transfer a CTF to the Vantage Junior Stocks & Shares ISA
The Vantage Junior Stocks & Shares ISA is designed for investors happy making their own investment decisions. Simply read the Key Features and Terms & Conditions, plus the Key Investor Information Document for any funds you are considering, and complete the transfer form. This will need to be completed by the registered contact (parent or legal guardian) for the account. Before you decide to transfer please ensure you understand how the transfer will be made. Most providers don’t allow stock transfers so if you transfer as cash you will be out of the market during the transfer and you will not benefit from any growth during the time cash is held. If you are not sure whether a transfer is suitable for your circumstances, please contact us for advice.
The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website is not personal advice based on your circumstances. So you can make informed decisions for yourself we aim to provide you with the best information, best service and best prices. If you are unsure about the suitability of an investment please contact us for advice.