What is the difference between a Child Trust Fund and Junior ISA?
The aim of a Junior ISA and a Child Trust Fund
Both a Child Trust Fund and Junior ISA are savings initiatives that the Government introduced to encourage parents to save on behalf of a child.
So the principles of the product are the same – for parents, grandparents, family members and friends to save towards a child’s first footsteps into adult life at age 18.
When does my child get access to their money?
For both savings plans, money is locked away until the child’s 18th birthday, where they will be able to withdraw the money, invest it further (in an ISA for example) or a mixture of the two.
Is the amount you can save in a Child Trust Fund different to a Junior ISA?
No, the Government sets the amount that family and friends can contribute. 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?
You can invest in either a Stocks and Shares Junior ISA or Child Trust Fund or you can invest in Cash in a Junior ISA or a Child Trust Fund. So both savings plans can invest in both types of savings.
What about being tax-efficient?
Both a Junior ISA and a Child Trust Fund 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 Junior ISA or Child Trust Fund?
A Junior ISA or Child Trust Fund 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 Junior ISA or Child Trust Fund.
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).
Note: See the 'You can only open a new Junior ISA' section below for the difference.
So what are the differences?
The contribution year
As we already mentioned above, one difference is the contribution period. 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 the 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 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, however for those children who do have a Child Trust Fund, family and friends can continue to contribute up to the child’s 18th birthday.
So if you are looking to save for your child and you have parental responsibility you can open a Junior ISA. A child at the age of 16 (up to 18) can open their own Junior ISA and manage the Plan – but someone with parental responsibility can still do this.
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.
Ohhh adding 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 a Junior ISA provider to another Junior ISA provider.
Charges and investment will always depend on the provider.
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’.