People saving money for children in Child Trust Funds (CTF) could have their potential payouts cut by more than £300 million over the next ten years because they cannot transfer into higher paying Junior Isas (individual savings accounts).
That’s the message from a new study by Which?, the consumer champion. It found that the average Junior Isa is paying a fifth more interest than the typical CTF. For example Nationwide’s CTF account pays just 1.1 per cent, but its Junior Isa account pays 3 per cent (including a 0.9 per cent one-year bonus).
The best CTF rate, of 3 per cent, from Yorkshire Building Society, includes a bonus of 0.7 per cent , whereas the very top Junior Isa rates of 3.02 per cent, come without bonuses.
Although the difference in the average annual rate of return between CTFs and Junior Isas is only about 0.5 per cent, Which? calculates this would amount to a loss of £300 million over a decade for those using CTFs.
CTFs were replaced last year by Junior Isas for all newly-born children in the UK, but those who have already saved a total of £4.4 billion in CTFs (mostly parents with children between one and 10 years old) will not be able to switch to the new Junior Isas. Instead the schemes will run side by side, with parents and relatives able to put a total of £3,600 into the accounts each year.
Advertisement
Which? is campaigning for this restriction to be lifted, so that CTF savers are not trapped in poor value savings products.
Peter Vicary-Smith, chief executive of Which?, said: “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 for children’s savings regardless of when the child was born.”