Boost for child trust fund savers

Millions of youngsters with money put aside for them in child trust funds are set to benefit from a change of rules which means they can be transferred into a junior ISA.

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The Treasury said the ban on moving Child Trust Funds to Junior ISAs would now be lifted from April 2015

Millions of youngsters with money put aside for them in child trust funds are set to benefit from a change of rules which means they can be transferred into a junior ISA.

The funds, which placed money in children's accounts when they were born and could also be topped up by relatives, were scrapped by the Coalition.

But parents were banned from switching the cash into the new junior ISAs, leaving the money locked into accounts paying worse interest rates.

The Treasury said the ban would now be lifted from April 2015, with legislation to be introduced next year, following a public consultation which was announced in May. There are currently 6.1 million child trust funds, holding almost £5 billion of deposits.

These will all be eligible for transfer to junior ISAs, of which there are currently 300,000, holding more than £550 million, according to the Government.

Chancellor George Osborne said: "The Government supports hard-working families who want to save for their children.

"So I'm delighted that, as a result of these changes, over 6 million children who currently have savings in a child trust fund will be able to benefit from better returns and lower charges on those savings in the future."

The funds gave an average voucher of £250 to babies born between September 2002 and January 2011 before being axed by Mr Osborne.

Now, junior ISAs often have better rates of interest, with the best available in November at 6%, compared with the best for a child trust fund of 3%.

The newer products were introduced in 2010. Up to £3,840 can be placed in them without tax being paid on any interest or gain. When the child turns 18, they automatically become adult accounts.

Danny Cox, head of financial planning at Hargreaves Lansdown, said: "This is great news. The days of the child trust fund have been numbered since the launch of the junior ISA.

"Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products or suffering lower interest rates than their junior ISA counterparts.

"This change will pave the way for a significant improvement in choice and outcomes for over 6 million children and ultimately lead to a full merger.

"Transfers should happen from April 2015 and, in the meantime, parents and grandparents who are saving into child trust funds for their children or grandchildren should continue to do so"

Guy Simmonds, head of product, protection and investments for Nationwide, said: "Parents, family and friends want a simple and preferably tax-efficient way to save for a child's future.

"This change is a welcome step to improve the simplicity and flexibility of accounts available."

Mr Osborne faced criticism from Labour for appearing to suggest that the change would come into force a year earlier than it will.

"Child Trust Fund savings can be transferred to Junior Isas from April, " the Chancellor posted on Twitter.

"Want tax system to support hardworking parents saving for their kids."

Noting the failure to mention the 2015 implementation date, shadow chief secretary to the Treasury Chris Leslie said he had "missed that little bit out" and sought to draw a comparison with last year's Budget - dubbed an "omnishambles" - which resulted in a number of policy U-turns.