Three reasons why a Junior ISA might be better than a Child Trust Fund

Please see our glossary for information on the financial terms used in this article.

If your child was born between 1 September 2002 and 2 January 2011, they almost certainly have a Child Trust Fund (CTF). This is a tax-free savings account set up by the UK government with an initial contribution of up to £250. The CTF scheme aimed to encourage long-term saving so young people had a pot of money when they reach 18.

Whilst many parents continued to contribute to these accounts over the years, a large number of CTFs remain untouched or forgotten. In fact, an estimated £1.7 billion is sitting dormant in CTFs, with 42% of 18- to 20-year-olds yet to claim their savings¹. This may be because, often without parents’ knowledge, accounts were automatically opened on behalf of each child, even if the parents hadn’t done so themselves.

The CTF scheme closed in 2011 and was replaced by the Junior ISA (Individual Savings Account). Both accounts offer tax-free savings, but Junior ISAs are now seen as the more flexible and competitive option as they typically provide better investment options, higher returns and lower fees.

The youngest children eligible for a CTF were born on 1 January 2011, which makes them 14 years old today. That means all remaining CTFs will mature by 2 January 2029 – just over three years from now – when the child turns 18 and inherits access to their funds.

If your child is under 18, now could be a good time to review how their savings are performing. If the money is sitting in an outdated or expensive CTF, transferring it to a Junior ISA could give it a better chance to grow before they reach adulthood.

ISA and Junior ISA tax rules may change in the future. ISA tax advantages depend on your individual circumstances.

1. Greater choice and flexibility

One of the main drawbacks of CTFs is that they’ve become stagnant since the scheme’s closure in 2011. With little incentive for providers to innovate or offer competitive returns, the market has remained largely unchanged.

In contrast, Junior ISAs benefit from ongoing government support and operate within a dynamic, competitive environment. This drives providers to offer better rates and a wider range of options, making them a more attractive choice for parents looking to invest in their children's future.

Junior ISAs come in two types: Cash ISAs and Stocks and Shares ISAs. Unlike CTFs, you can open one of each type at the same time, giving you the flexibility to tailor your child’s savings strategy. For example, you might choose to keep some money in cash for your child’s short-term needs like paying for university fees at 18, whilst investing the rest for longer-term goals such as buying a house or paying for a wedding in their late 20s.

2. Lower charges

CTFs are often criticised for their high fees. Junior ISAs, on the other hand, usually have lower annual charges, meaning more of your child’s money stays invested and can grow over time.

A large portion of accounts are default ‘stakeholder’ CTFs, where money is automatically invested into funds – typically index trackers that follow overall market performance – chosen by the provider. These accounts often charge an annual fee of 1.5%, which is relatively high compared to similar investments that are generally cheaper when held in a Junior ISA.

It might be worth paying higher charges if you receive better investment performance, but you should know what you are getting in return. Paying higher charges for the same product could reduce the value of your child’s savings by the time they come to need them.

By comparing the value proposition offered by your current CTF provider, you may find that switching the funds to a Junior ISA could reduce the charges paid from your child’s savings.

3. Simplicity

Transferring a CTF to a Junior ISA is simple.

After choosing the Junior ISA into which you wish to switch your child’s savings, you should contact that provider to check they accept inward transfers. Most providers will handle the process for you, and it typically takes about a month. But before you transfer, there are a few important things to consider:

• A child cannot hold both a CTF and Junior ISA simultaneously, therefore the full balance of a CTF must be transferred
• Transfers cannot be reversed – you can’t move the money back into a CTF after transferring it into a Junior ISA
• Most providers, like M&G, don’t charge a transfer fee – but it’s always worth checking first to avoid any surprises
• Whilst your investment is being transferred, it will be out of the market for a short period of time and will not lose or gain in value
• To keep savings tax-efficient, it’s crucial you always use your provider’s transfer service when moving money from a CTF to a Junior ISA

CTFs are not held by the government but are held in banks, building societies or other savings providers. There’s a list of CTFs providers on the government website.

If you’re unsure whether your child has a CTF or you are unable to locate it, you can use the government’s free tool to help you trace it.

With M&G, you can transfer both existing and matured CTFs into a Stocks and Shares ISA/Junior ISA. Visit our Transfer your ISA page for more information. Please note, your current provider may apply a charge when you transfer your investment.

Please note: The M&G Junior ISA and The M&G ISA are Stocks and Shares ISAs only.

Taking a fresh look at your child’s savings

It’s easy to forget and lose track of a savings account, especially when it’s locked away for a number of years or set up automatically through a government scheme. Reviewing your child’s savings now could make a meaningful difference to the amount they receive in the future, helping them build financial confidence and independence. That’s why it’s always important to take another look.

If you’re unsure whether a Junior ISA is right for your child’s needs, or you have further questions about CTF transfers, consider speaking to a financial adviser. They can explain your options, assess your circumstances and recommend the most suitable approach for your child’s future.

¹ FT Adviser, ‘Millions missing out as £1.7bn sits unclaimed in child trust funds’, (ftadviser.com), July 2023.