If your child has a child trust fund, you can transfer the money to a junior ISA. Should you do this and, if so, and what should you watch out for?
Switching a child trust fund to a junior ISA
There are several reasons why you might want to switch from a child trust fund to a junior ISA:
1. The level of charges If your child has a child trust fund that’s a stakeholder (which invests in stocks and shares and moves the money to lower risk investments as your child approaches 18 years of age), you may be paying quite high charges. These charges could be up to 1.5% a year.
SAVVY TIP: Most stakeholder child trust funds are simple tracker funds, which means that they aim to follow a stock market index (such as the FTSE 100 index or FTSE All Share). You can get stocks and shares junior ISAs that track an index with much lower charges than 1.5%.
2. The level of interest If you have a cash child trust fund, you may be getting a lower level of interest than you would receive from the equivalent junior ISA.
3. Convenience Not all providers offering child trust funds also offer junior ISAs – and vice versa. If you have children of different ages, one with a child trust fund and one with a junior ISA, you might prefer to have them all with the same bank, building society or investment management company.
How to switch a child trust fund to a junior ISA
If you want to transfer your child trust fund to a junior ISA this is what you need to do:
1. Go online or call the company you want to transfer the child trust fund money to.
2. Make sure you have the child trust fund plan number (it should be on your statements and on all correspondence).
3. Give the new provider the name and address of your current child trust fund provider.
4. Supply your bank account details if you want to continue making regular contributions, or set up new contributions.
Switching from cash child trust fund to shares junior ISA or shares to cash
You might want to switch from a cash child trust fund to a stocks and shares junior ISA, or from a stocks and shares child trust fund to a cash junior ISA. Here’s what you should bear in mind:
- You should get a better return if the money is invested in shares, rather than left in a cash account – as long as it is for the longer term. I take this to mean ten years or more, but some financial experts use a shorter time frame.
SAVVY TIP: According to research by Barclays Capital, there is only one 18-year period between 1899 and 2009 when you’d have done better leaving your money in a savings account than putting it in shares.
- If you’re going to worry about ups and downs of the stock market, don’t give yourself a hard time about keeping your child’s child trust fund or junior ISA in cash. You can always switch it (again) later if you want to.
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