Child Trust Funds

10A while ago I wrote the article below and as we all might have anticipated nothing has changed in the interim. Today Sy Morris of the Daily Mail wrote a piece on the topic which I feel merits the re-run of the issue read. Sy that over the course of the 18 years life of a Child Trust Fund (CTF) a youngster is likely to lose £34,000, being the difference between the likely return on a  CTF compared with a Junior ISSA.  He says that a number of the big banks are supporting the unlocking of the CTFs. It is widely accepted that with the money locked into these acounts there is no incentive for the managers to really bother about the onterest rates and as said in the article they will merely degrade. Increasingly parents and grandparents are unwittingly treating their children and grandchildren differently as some have CTFs and now the rest have Junior ISSAs. It is a scandal and I have decided on behalf of silverlinkers to write directly to the Chancellor of the Exchequer to protest.

Like many grandparents when the Labour Government launched the £250 child vouchers and accompanied it with the setting up of Child Trust Funds we thought this would be a tax free way of putting savings aside for the future of our grandchildren. The Government at the time thought this would be a good way to ensure reasonable nest eggs for youngsters by the time of their 18th birthday.

The rules limited annual contributions to such funds to £1200 but as a tax free account it seemed to have merit. It was untouchable by anyone other than the named child and only on reaching their 18th birthday.

Historically low interest rates and a volatile market have seen these Trust Funds under-perform since they began and many of us are regretting having opened one.

Replacing them are the new Junior ISSAs a tax free account with a maximum annual contribution of £3600. These new accounts do not have the same constraints as the old CTFs and will become the account of choice for parents and grandparents wishing to help their children, provided the interest rate settles into a competitive rate. However, as you are not allowed to upgrade your established CTF to a JISSA many people are going to be saddled with an underperforming obsolete account.

There is little or no incentive for the financial institutes that have provided CTFs to maintain interest rates and if the financial sectors record of reducing rates on accounts at every opportunity is anything to go by then money in these accounts will languish miserably until inflation has totally eroded any benefit by the child’s 18th birthday.

There is a gradually increasing lobby to force the current Government to allow the conversion of CTFs into the new JISSAs.

If you have views on this topic why not let us know ?

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