Child Trust Fund or Junior ISA?
There are many ways that you can put yourself and your family in a better position by saving, and it doesn’t have to come at the expense of your usual lifestyle.
One of the most important things you can do is to help your child create a positive money mindset from a young age. This means teaching your child about money and how money works and encouraging them to save for the things they want to buy. I’ve written a blog on this subject if you need more help with this.
Saving for the future is a sensible strategy at any age, but the earlier you start, the greater the rewards will be due to the compounding effect of growth and interest on investments. (Compounding is when you re-invest your earnings, and earn more money on your earnings and so on – like a snow ball rolling down a hill).
If you have a child who was born between 1 September 2002 and 2 January 2011, they will have a Child Trust Fund (CTF). This scheme was started by the Government and has now been replaced by Junior ISAs. Both Junior ISAs and CTFs are tax-efficient savings schemes that encourage parents and other family and friends to save for children.
Both of these allow your child’s money to grow free of Capital Gains Tax and Income Tax.
There are some differences in the two schemes:
- Your child can only have one CTF (either in cash or stocks) but can have a cash Junior ISA and a stocks & shares Junior ISA.
- It is not possible to have a CTF and a Junior ISA, but CTF funds can be transferred into a Junior ISA (not the other way around).
- You will likely find more choice of investments and providers for Junior ISAs.
- The Child Trust Fund contribution year runs from your child’s birthday to birthday, whereas the Junior ISA runs for the tax year (6th April to 5th April).
The annual savings allowance is £9,000 per child. Both the CTF scheme and a Junior ISA allow your child to withdraw their savings from their 18th birthday. However, whilst a Junior ISA automatically converts to an adult ISA at age 18, a CTF scheme will likely need a decision from your child – either withdraw the funds, or convert to an adult ISA. No decision results in mixed consequences depending on who the provider is.
So it is worth checking what your children have.
If you have any questions about saving for your children – whether Junior ISAs, transferring funds from CTFs, or anything else, please get in touch.
The value of an ISA with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested. An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.
The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.
Please note that St. James's Place does not offer Cash ISAs.
