Government must let families access the best savings deals

Which? calls on the Government to allow families to transfer savings in Child Trust Funds to Junior ISAs, otherwise they could lose out on £300 million over the next ten years.

Children with a Child Trust Fund (CTF), who are currently unable to transfer their money to a Junior ISA, are potentially losing out on over £300 million over the next ten years in lower interest rates and higher charges.

The Government is currently consulting on whether or not to change the rules. Which? is calling for families to be allowed to voluntarily move their money from a CTF to a Junior ISA.

If they allow the transfer, they should require providers to notify all families with CTFs about this and explain the different rates and charges involved.

Which? executive director, Richard Lloyd, said:

“It’s simply not fair that the date of your child’s birth could stop you getting the best deal on their savings.

“The Government must push forward reforms to protect the investments of millions of children with money in Child Trust Funds and allow them to access better deals available in Junior ISAs.”

The Government should also consider automatically merging cash CTFs and shares CTFs into Junior ISAs, to prevent savers who may not realise they are able to transfer from missing out on a better product. However, switching from stakeholder CTFs should be voluntary because investment Junior ISAs have no cap on annual charges, so some consumers may end up worse off if they were automatically switched.

Notes to editors:

1. The Government stopped adding contributions to Child Trust Funds in 2010 but children born between 1 Fund are not able to open a Junior ISA and transfers between Child Trust Funds and Junior ISAs are currently prohibited.

2. The vast majority of CTFs are either stakeholder CTFs or cash CTFs so our calculations are based on these two types, not shares CTFs. We have estimated how much children in CTFs could lose out on over the next ten years by comparing the interest you would get in a stakeholder CTF and a cash CTF with the interest you would get in a Junior ISA, and taking into account average charges on both accounts:

Stakeholder CTFs: According to the HMRC, in April 2012, there was £3,665 million saved in Stakeholder CTFs. In Child Trust Funds, charges are typically 1.5% a year whereas in Junior ISAs, they could be substantially lower – for example 0.56% a year. We assumed that by switching to Junior ISAs, families would pay 0.5% less in charges. We used the Financial Conduct Authority’s intermediate projection rate for retail investment products of 5% a year, and assumed that the £3,665 million grows at 3.5% (after charges in CTFs are taken into account) compared to 4% in Junior ISAs. This means that after ten years the existing amounts would be worth £5.425 billion in a Junior ISA, compared to £5.169 billion in a CTF – a difference of £255 million.

Cash CTFs: According to HMRC, in April 2012, there was around £837 million saved in cash CTFs. In July 2013, the average rate of interest for a Cash CTF was 2.3%, and for a Cash Junior ISA was 2.8% – a difference of 0.5%. Assuming both were to grow at the current interest rate over the next ten years, the Cash CTF accounts would be worth £1.050 billion compared to £1.103 billion in Junior ISAs – a shortfall of £52 million.

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