Do you remember Child Trust Funds (CTF)? They seem like a distant memory don’t they? For those unfamiliar with CTFs, they were launched by the Labour Government in 2005 as a way of investing for a child’s future. Each child received £250 from the Government at birth, with the money locked away in a CTF. They came with the promise of a further £250 from the Government at the age of seven with families encouraged to invest whatever they could into the fund.
While the funds are still going, the coalition Governement announced in 2010 that there would be no further Government top ups, effectively making CTFs obsolete. Our firstborn arrived back in 2008 so she was one of the children of that era to have a CTF opened in her name.
Of course Toddler Adams, born after 2 January, 2011, didn’t get a CTF. Despite this, she got the better deal because we have been able to invest in a Junior ISA (JISA) on her behalf.
This matters, because the options for saving with a JISA are much better than with a Child Trust Fund. There are many more JISA accounts around to choose from. Ever since JISAs were launched, the writing’s been on the wall for old CTFs. They’re gradually becoming historic savings plans.
Of course, this is largely academic. We’ve been stuck with our firstborn’s CTF, since the rules state you can’t transfer the money out of it.
The good news is this may change. From April 2015, it should become possible to take money from an old CTF and transfer it to a JISA. The final rules haven’t been published yet, but that’s what’s expected to happen, and I can’t wait to get the girls’ savings onto an equal footing.
One thing which CTFs and JISAs have in common is the way they’re tax efficient. There’s no income tax or capital gains tax to pay on income or growth, which is good news. And with either one you can save up to £4,000 in the 2014/15 tax year. Parents, grandparents and friends can all contribute. Research from Standard Life shows that 44% of parents and 33% of grandparents make contributions to savings accounts for youngsters.
It’s rare for me to make any reference to football because I can’t stand the game, but I find myself thinking like a football manager, planning for the transfer window. Where should my wife and I transfer the firstborn’s CTF come April 2015? Should we go for cash, or stocks and shares?
Since they’re both young and you can’t touch the money until the age of 18, we’re going for stocks and shares, just to give the JISA more potential for growth. I know many people feel happier with the apparent security of cash. After much discussion and debate, Mrs Adams and I reckon interest rates are so low that the growth won’t be worth much with cash. It is, of course, your choice and everyone has a different risk appetite.
There’s one final consideration here. I’m not overly happy about the fact that CTF or JISA funds belong to the children. One they hit 18 they can spend the money as they wish. Who knows how they’ll turn out, especially with my parenting!
The other option is to save inside my own ISA, since I control that money, not the girls. The savings ceiling there is £15,000 this tax year, so plenty of headroom to save for them there (to be perfectly frank, the odds of hitting £150 are unlikely so more than enough space to invest!).
If you’d like more information about saving for children, this blog looks at the options in more detail and the Money Advice Service has this guide to help.
With thanks to Julie Hutchison of Money Plus blog for helping with this post.
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