What is the difference between a Child Trust Fund and Junior ISA?
Child Trust Funds and Junior ISAs
Child Trust Funds and Junior ISAs are similar products. They are both savings initiatives that the Government introduced with the main aim being to encourage parents to save on behalf of a child.
So, the principles of the products are the same – for parents, grandparents, family members and friends to be able to save towards a child’s first footsteps into adult life at age 18.
This article compares both the similarities and differences between these products from contribution limits and responsibility for the account to contributions that the Government may have made.
When does my child get access to their money?
For both savings plans, money is locked away until the child’s 18th birthday, when they will be able to make an encashment, continue to invest further (in an ISA for example) or a mixture of the two.
Both products are medium to long-term investments and therefore there is potential for more growth compared to saving in cash.
When investing in the stock market, the value of the Plan may fall as well as rise and you may get back less than has been invested.
Is the amount you can save in a Child Trust Fund different to a Junior ISA?
No, the Government sets the amount that can be contributed. Currently this is £9,000. For a Junior ISA the contribution period runs in line with the tax year, for the Child Trust Fund this runs from birthday to birthday (the first of the differences we will tell you about).
Is the investment type the same?
Child Trust Funds and Junior ISAs can both be invested in either stocks and shares or cash so, for both savings Plans you have the same investment choices.
Are both products tax-efficient?
Yes, both a Child Trust Fund and a Junior ISA are tax-efficient savings. This basically means that any investment growth is not taxable.
Tax treatment depends on an individual’s circumstances and may be subject to change in the future.
Who has responsibility of managing a Child Trust Fund or Junior ISA?
A Child Trust Fund or Junior ISA can be managed by someone with parental responsibility; this person is called the Registered Contact and is the only person who can make any changes to the Child Trust Fund or Junior ISA.
At age 16 the child can take responsibility for managing the Plan and become the Registered Contact as well as being the Planholder (the person who is entitled to the money at age 18). However, the parent/guardian can continue to look after the Child Trust Fund or Junior ISA on the child’s behalf up until their 18th birthday.
See the 'You can only open a new Junior ISA' section below for the difference.
A note: Charges and investment choices will always depend on the provider. Your Child Trust Fund Extra, only has a 1% charge, therefore making it the most cost-effective Child Trust Fund on the market.
The contribution year
Although the maximum you can save in a Child Trust Fund or a Junior ISA is currently £9,000, they do have different contribution periods. For a Child Trust Fund this runs from the child’s birthday to birthday. The contribution period for a Junior ISA is each tax year (6th April to 5th April each year), just like an Adult ISA.
They were not available to everyone
A Child Trust Fund was only available to children born and registered in the UK between 1st September 2002 and 2nd January 2011. A Junior ISA is available to all children. But a child can only have a Child Trust Fund or a Junior ISA, not both.
You can only open a new Junior ISA
You can currently open a Junior ISA, whereas Child Trust Funds are no longer available. No matter the product, family and friends can continue to contribute up to the child’s 18th birthday in a Child Trust Fund or a Junior ISA.
You can have a Cash and a Stocks and Shares Junior ISA
A child can have one Cash Junior ISA and one Stocks and Shares Junior ISA, however if your child has a Child Trust Fund, they can only have one type of Child Trust Fund – either in cash or stocks and shares.
The Child Trust Fund received a voucher from the Government
The Government gave a Child Trust Fund voucher for children born between 1st September 2002 and 2nd January 2011 (ranging from £50 to £500). Junior ISAs do not receive a Government voucher.
Transferring from one to the other
In April 2015 the Government allowed for Child Trust Funds to be transferred to a Junior ISA (if the Registered Contact wished to do so), but a Junior ISA cannot be transferred to a Child Trust Fund. Please note, once you transfer a Child Trust Fund to a Junior ISA it cannot be transferred back.
A final similarity: For both products you can transfer between providers; from one Child Trust Fund provider to another Child Trust Fund provider and from one Junior ISA provider to another Junior ISA provider.
Overall, there are no major differences between a Child Trust Fund or a Junior ISA, the aim of both products is for parents, family and friends to save for a child’s future. If you are thinking about transferring a Child Trust Fund to a Junior ISA you should take into consideration the charges to the Plan, the investment and the service offered by the provider. Your child's Child Trust Fund with Halifax, and soon to be transferred to us, only has a 1% charge, therefore making it the most cost-effective Child Trust Fund on the market.
For more information about a Child Trust Fund read ‘What is a Child Trust Fund?’ For more information about a Junior ISA read ‘A guide to Junior ISAs’