Business

Change on Child Trust Funds 'great news' for children

girl with piggy bank
Image caption Young savers should get better savings rates from April 2015

Six million children with savings in Child Trust Funds (CTFs) will be able to convert them to Junior ISAs, the government has announced.

The change has been welcomed as "great news" by financial experts, as children will be able to access much better savings rates.

CTFs were launched by Labour in 2005, and scrapped by the coalition government in 2011.

Parents will be able to convert them to Junior ISAs from April 2015.

6.1m children born between September 2002 and January 2011 were given vouchers of £250 each by the government, to kick-start their savings.

Some had a top-up of a further £250 at the age of seven.

'Terminal decline'

But interest rates on CTFs have become uncompetitive, when compared to Junior ISAs, or Individual Savings Accounts.

The best interest rate on a CTF is around 3%, compared to 6% on a Junior ISA.

Furthermore parents with CTFs were not allowed to open Junior ISAs for their children, or transfer the money across.

"Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products," said Danny Cox of investment firm Hargreaves Lansdowne.

Since 2011, children under the age of 18 have been allowed to open Junior ISAs instead.

Up to £3,720 a year can currently be invested in a Junior ISA, split in any proportion between cash and shares.

The returns are free of income and capital gains tax, with cash accounts currently offering savings rates of up to 6% for a limited period.

When a child reaches the age of 18, the account is automatically converted into an adult ISA.

The advice to parents and grand-parents is to continue saving in CTFs until April 2015, when they can be converted into ISAs.

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