Child Trust Funds: it's time to dump them in favour of Junior Isas

Do you have a child aged between four and 12? If so the new tax year has opened up a great opportunity for you.

Parents of children born between 1 September 2002 and 2 January 2011 were able to open Child Trust Funds to start saving for their children's future. But they have become shackles for children rather than the financial springboards they were meant to be.

In 2011 Junior Isas were launched and replaced Child Trust Funds (CTFs), but the government left out a crucial clause – it was impossible to transfer CTFs into Junior Isas. This meant while banks focussed on attracting new Junior Isa business they neglected CTFs, so the interest rates were pitiful. For example, the top Junior Isa rate is 4% but the best you can get for a CTF is a measly 2.65%

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Given that you can't withdraw the money held in an CTF or Junior Isa until the child turns 18 that means you could be screwed on interest rates for years.

If you tried to invest in the stock market in order to boost the returns you would have found you could only invest in a very limited number of products compared with the options available under Junior Isas

This has now all changed. The start of the tax year brought with it a rule change that means you can now transfer money held in CTFs into Junior Isas. There is £4.8 billion currently sitting in CTFs, and if any of it belongs to your child you should move it into a Junior Isa as soon as possible so it can grow much faster.

The best accounts

If you want to stick to cash savings then The Coventry and Nationwide offer the best standard rate at 3.25 per cent on their Junior Isas. But, if you hold an adult cash Isa with Halifax it pays a rate of 4 per cent on its Junior Cash Isa. This is worth considering as the Halifax pays marginally below the top rates on adult Isas but you'd get substantially more interest on the Junior Isa. Also, if you deposit more than £5,000 into an adult Isa with Halifax you'll be eligible for the Saver's Prize Draw which doles out two top prizes of £100,000 each month.

Alternatively, you could move your Child Trust Fund money into an investment Junior Isa. Given that the money is going to sit there for up to 18 years the stock market could provide much better returns than cash. Several providers, including Hargreaves Lansdown, Scottish Friendly and Family Investments, offer stocks and shares Junior Isas.

How to transfer the money

The process for moving money out of a CTF and into a Junior Isa is just the same as if you were transferring money between Isas. You need to choose the Junior Isa that you want to move to then contact the provider and they will organise for the money to be moved. You have to transfer the full amount out of the CTF and close the account. The whole process should take no longer than 15 days for cash accounts and 30 days for investment accounts.

Find a Child Trust Fund

Not sure if your child has a CTF? It's easy to find out: just go to the HMRC website and fill out the form and they will find out if there is a CTF in your child's name