What are CTFs & JISAs?
Child Trust Funds (CTF) and Junior ISAs (JISA) are quite similar – they are tax-efficient saving or investment accounts which a child can access from age 18. You may find however that you have more flexibility and choice with a JISA. That’s because Child Trust Funds will be phased out and no new ones have been set-up since 2011.
How much can you save into a CTF or JISA?
The new limit for saving in a JISA or Child Trust Fund is £4,080 from 6th April 2015 - so if you are saving monthly, that’s £340 a month you can set aside.
You have more flexibility and choice with a JISA
What are the new rules?
New rules apply from 6th April 2015 which mean money in old Child Trust Funds can be transferred to JISAs. Until now, if you had a Child Trust Fund, you couldn’t open a Junior ISA for that child. If you had other children who did have a JISA, this different treatment was frustrating.
Cash or stocks & shares?
If you’re looking at which JISA to choose for transferring your old Child Trust Fund, you’ll have a choice to make between cash or stocks and shares. What suits you depends on the age of your child and your personal preference.
- Cash JISA If your child is in his or her teens and the money will be needed at age 18 to pay for education, cash gives you more certainty over what you’ll get back in a shorter space of time. The downside is the low bank interest-rates and the way inflation could eat at the value of those funds over the long term.
- Stocks and shares JISA These offer the potential for higher growth, and this means investing your child’s money in the stock market where there will be ups and downs along the way. But if you have a young child, you could have over 10 years of potential growth ahead. Investments tend to give you better growth compared to cash over the longer term. Not all stock market funds are the same – some are lower risk and some are higher risk, so you can choose one that more closely matches your child's needs. Always bear in mind a Stocks and Shares Junior ISA is an investment so its value can go up and down and it may be worth less than you paid in.
Transfer - don't close
If you’re thinking of transferring your old Child Trust Fund to a JISA, don’t close your Child Trust Fund. The company you choose for the JISA will arrange for the transfer, and this way it keeps its tax-efficient status.
Can a grandparent pay into a JISA?
Whether it’s easy for grandparents to pay into a grandchildren’s JISA directly depends on the account, but it may be simpler for them to pass on money to the parents, who are the operators of the JISA and who can pay in. Parents and guardians are the ones who are legally entitled to open and operate a JISA account (until the child is 16, when the child can then manage the account, although they can’t take money out until age 18).
Looking at another option altogether, if the idea of your teenager blowing the money on their 18th birthday is a worry, you can use your own ISA to keep more control. This ISA savings limit for 2015-16 is £15,240 which gives you plenty of space to save for you and ‘junior’. This option only suits for future savings however as you can’t transfer a Child Trust Fund to your ISA.
- You can read more about saving for children and grandchildren in Yours magazine on sale now.