Junior cash ISA vs. child trust fund

For the year 2018-2019, the tax savings in the junior ISA is up to £4,260.

To be eligible to apply, the child must be below 18 years, living in UK, or, is a crown servant posted outside the country like serving in UK’s armed forces or in diplomatic services. Both child trust fund or CTF, and junior cash Isa get tax free interests but as per government rules, one cannot buy both. The money is invested into a wide range of stock market options from both, where the charges on CTF can be 1.5 per cent per annum. CTF is offered to children born between 1 Sep 2002 to 2 Jan 2011, and the child can manage the funds when he turns 16. This year on September 1, the fund completed its 16th year, and for the first time the CTFs will give the 16-year old young account holders accessibility to manage their funds.

Transferring account

One can shift to junior ISA from CTF but most such options have exit fees or hold guarantees, which will be lost if it is switched. The government on April 6, 2015 allowed switching such funds to junior ISA, and if the child is able to handle finance effectively at the age of 16 or 17, this shift from one to another account with higher interest rates can be beneficial.

To move the account, the owner of the account has to fill the transfer form and mention the purpose of withdrawing. Most such transfer of funds is completed in a month time.

Comparison to other types of funds

There are other options to save for children such as saving account where one can get fixed rate and easy access. Like junior ISA, one is not limited by amount and can save large sums of money in it. These provide some of the best rates but require paying regularly (each month). In such conditions, the income of more than £1,000 a year from the account will be taxable.

Comparison to standard ISA

Anybody from the family can invest in  Junior Cash Isa and interest rates are higher as compared to standard Isa where the companies such as Covertry  pays 3.5 per cent , Tesco 3.15 per cent and Nationwide 3.25 per cent. Darlington Building Society, TSB and Halifax pay up to 3 per cent.  

One can start with a minimum £500 in lump sum or pay regularly in between £10 to £50 per month.  

One can apply for cash, or stocks and share based ISA or both.

By saving as little as £70 in a month, one can get the child up to £21,535 when the child turns 18, and those who can save more can invest up to £344 a month, which will be able to provide the child with £106,600 at the age of 18.

In the recent changes in regulations, children in the age of 16 and 17 can claim up to a £20,000 of the both - adult and junior cash ISA.

To find out more about junior cash ISA or child trust fund investments or other such options, click Asset Class Pedia at (https://assetclasspedia.com/).