To CTF or JISA? That is the Question

CTF or JISA ?

From their introduction in January 2005 to the issue of the final vouchers in 2012, 4.5 million Child Trust Funds (CTFs) were opened by parents(1).

However, in November 2011, this form of account became partially superseded by Junior Individual Savings Accounts (JISAs) and since April this year, you have had the option to transfer existing CTFs to the newer JISA.

The two savings plans are very similar –

You can save up to £4,080 a year (tax year 2015/16) and have a choice between low risk cash deposit savings or higher risk investments. And the money saved can come from a variety of sources – not just the parents but from friends and relatives too, up to the maximum annual limit per child. The proceeds accumulated when the child reaches 18 are then free of additional tax on any growth or income received.

There are two potential issues – 

Firstly, Child Trust Funds were not very widely offered. In addition, following their closure to new business, they will basically become obsolete as more children for whom they were opened reach 18. The incentive for existing providers to offer attractive rates on these products is therefore low.

Secondly, CTFs only allow you to invest in EITHER cash OR investments. Given savings plans for children are normally long term (up to 18 years) you might want a combination of both – investments for their long term growth potential but some cash as well, for its underlying guarantees.

It may therefore be worthwhile considering a transfer to the newer product. If you have a cash CTF, for example, check the interest rate and see if a cash JISA might offer better returns.

For investment CTFs, is there a JISA that might reduce the charges you pay, offers a wider range of funds to increase flexibility or offers other options with greater potential? And, there is also the chance that you might want to combine cash and investments, which your CTF will simply not allow.

(1) UK Government, based on number of accounts reported using issued vouchers,published August 2014.

SIMPLY MONEY NEWSLETTER – SUMMER 2015