Which? research reveals that savers could miss out on more than £300 million in returns on child savings over the next ten years due to government rules that prevent transfers from Child Trust Funds (CTF) into Junior Isas.
We want the government to make sure the estimated £4.4 billion savings in CTFs don’t get trapped in poor-value savings products by allowing families saving in CTFs to transfer into higher-rate paying Junior Isas.
Which? found that the average Junior Isa is paying a fifth more interest than the average CTF. A Nationwide CTF, for example, pays just 1.1% a year compared with its 3% Junior Isa, which pays 2.1% and a 0.9% first-year bonus.
Even worse, the best CTF rate, of 3% from Yorkshire Building Society, has a 0.7% bonus which disappears after the first year. By contrast, the best Junior Isas are paying 3.02%, with no strings attached.
Even if the difference in the annual rate of return between CTFs and Junior Isas is just 0.5% a year, children with CTFs could miss out on more than £300 million in returns over the next ten years.
Which? chief executive, Peter Vicary-Smith, says:
“Junior Isas are a welcome addition to the savings market but it’s vital that the government does not penalise those children who were born before these new savings products were introduced.
“The Government must change the rules to allow savers to access the best rates available for children’s savings regardless of when the child was born.”
Notes to Editor
1. The article ‘New kids on the block’ is in the April 2012 issue of Which? Money. For a full copy of the article or an interview please contact Susan Golaszewski.
2. Which? looked at the top paying Junior cash Isa accounts currently on offer from 21 banks and building societies. The average junior cash Isa rate is compared with that of the average cash child trust fund rate. All figures are correct as of 3 March 2012.
3. Child Trust Funds (CTFs) were scrapped last year and replaced with Junior Isas. But parents with children under 10 who have their money in a CTF will not be able to switch.
4. According to Treasury figures, children held £4.4 billion in Child Trust Funds at the end of the last financial year http://www.hmrc.gov.uk/ctf/statistical-report-2011.pdf [page 6]