They were replaced by Junior ISAs, with many parents and guardians choosing to transfer money saved in the Child Trust Fund into a Junior ISA instead.
The main reason to do this is to access the better interest rates available with a Junior ISA in a more competitive marketplace.
Switching from a Child Trust Fund to a Junior ISA should be a straightforward process, and HMRC have a tool to help families track down lost Child Trust Funds.
What's the difference between CTF and JISA?
Child Trust Funds (CTFs) and Junior ISAs (JISAs) are two separate savings pots for children - although only JISAs are now available for new accounts.
CTFs were launched in 2005 by the Labour Government and then scrapped in 2011 by the Conservative and Lib Dem Government.
Children born between 1 September 2002 and 2 January 2011 were given a CTF while children born since then have been a JISA.
Both CTFs and JISAs offer tax-free savings, both lock away the money invested until the child named on the account is 18, both offer the opportunity to save cash or invest in some form of stocks and shares.
However, until 2029, it's theoretically possible that children may have a legacy CTF because that's the age when the final group will reach 18.
The money in CTFs is perfectly safe and some parents may prefer to leave it there and add any fresh savings for that child's future to that account, but it isn't a very competitive market anymore and may be getting very poor interest rates.
It's still possible to transfer a CTF from one provider to another to get a better rate, yet providers have had little incentive to keep the market fresh given that there are no new CTFs and many of the existing ones have been transferred to JISAs since a rule change in 2013.
Note: A child cannot have a CTF and a JISA at the same time, although it's possible for them to have both a cash JISA and a stocks and shares JISA at the same time.
Finding lost Child Trust Fund accounts
It's possible some families have lost track of their Child Trust Funds since the switch to JISAs in 2011.
HMRC have a tool we can use to find out which provider has our CTF. This is useful if we know we've got one for our child and need to track it down.
Go to HMRC's website and follow the instructions to help find the CTF either online or via post. Users will need to provide:
- Their full name and address
- The child's full name and address
- The child's date of birth
- The child's National Insurance number or Unique Reference Number (if known)
If a child is over 16, this is something they can do for themselves. Children under that age will need a parent or guardian to go through the process for them.
Are JISAs any good?
There are many similarities between CTFs and JISAs:
- Both keep money locked away until a child is 18
- The same amount can be saved (up to £9,000 per year)
- Savings and investments are tax-free up to a certain amount
On this last point, it's important to remember that children are taxed on their savings in the same way that adults are, so they can earn up to £18,570 per year from interest without needing to pay tax. It's highly unlikely any other tax rules are going to be applicable to a child in this situation.
However, unlike CTFs, JISAs do not come with a small lump sum from the Government (unless the child is in care), so the incentive to kickstart saving is not there.
That was one of the major criticisms a year after the introduction of JISAs - low-income simply hadn't heard of them.
Some of the other issues that were present when JISAs first took over from CTFs have ironed themselves out, such as the lack of JISAs out there, have resolved themselves over time
However, as we've explained, CTFs are now legacy products, so there's no competition out there and getting a good interest rate will largely depend on transferring the money to a JISA instead.
Switching from a CTF to a JISA
Moving from a CTF to a JISA should actually be pretty simple.
Because the money in the CTF is locked away, it can't be withdrawn - instead it'll need to be transferred into a JISA. Not all JISA providers accept transfers in, so do check before starting the account opening process.
But transferring has one huge advantage - the same advantage as adults thinking about moving to a better performing ISA would also do well to remember.
Transferring money from one tax-free account to another - be it an adult's ISA to ISA, or a CTF to a JISA - boosts the balance without counting towards that year's savings and investment allowance.
For example, for the tax year beginning 2022, CTF and JISA holders are allowed to save up to £9,000 a year in their JISA or CTF.
Transferring whatever's saved in the CTF straight into the JISA doesn't have any impact on that allowance: that means family members can deposit up to another £9,000 during the rest of the year.
As long as the provider accepts transfers in, it should simply be a case of telling them to open a JISA via transfer and asking for the required forms.
We then need to contact the old provider to let them know the account is being transferred.
Depending on the terms and conditions of both old and new providers, the money should be moved into the new account and the CTF closed within a month or so.
Things to note
As noted, transferring a CTF to a JISA will result in the CTF closing. As they're not available anymore, that'll be it - there's no switching back to a CTF should we decide we've made a mistake.
Adults can open fresh cash and investment ISAs every year, and put money into as many or as few of them as they like, as long as they don't exceed the overall £20,000 allowance.
But children are only allowed one cash JISA and one investment JISA.
So, say we find a cash JISA with a better interest rate than the one we've switched to: we can only open an account with that provider by a complete transfer from the existing JISA, resulting in its closure.
Likewise, if we think the shares JISA we've got isn't performing as well as it could be, or we've found one with lower fees, we can only take advantage of the better product by transferring the existing JISA to the new provider.
Note: Having one of each type - a cash and an investment JISA - is fine, as long as total contributions don't exceed £9,000 during the tax year.
When can we get hold of the money?
The idea behind both CTFs and JISAs is that the money is locked away until the child is older. That way, even if contributions tail off over the years, it can still grow like any other investment.
The funds will only be made available to the named account holder - that is, the child themselves - and no one else, and only when the child turns 18.
There's one exception to that, but it's not one we want to occur: should the child become terminally ill or die, the money can be accessed early, or by someone else.
Continuing to save
Once the named account holder reaches 18, the money is theirs to do with as they wish. Some might want to use it to pay for university, others may want to withdraw the money to get started on a business venture.
But they don't have to touch it at all.
Instead, the JISA will automatically convert into an adult ISA, with the adult annual allowance - and most importantly, it will remain tax-free.
This is a good way for young people to carry on saving and go into adulthood with a lump sum that can continue to grow, perhaps with a view to putting a deposit down on a house later on.
Summary: Switch for better rates
The debate on whether to switch from a Child Trust Fund to a Junior ISA is rapidly becoming a legacy question: by 2029, there will be no CTFs left.
However, for those parents and guardians looking at whether it's a good idea to transfer a CTF to a JISA, these are the important points:
- The amount that can be saved each year is the same
- Both can be accessed when a child turns 18
- JISAs are part of a more competitive market so there may be better interest rates available
This last point is basically what it comes down to: if we want to shop around for better interest rates for a child's nest-egg, the only real way to do that is by transferring to a JISA.