From MoneyWeek · · 3m
Your child's trust fund may be quietly losing money
Three million Child Trust Funds have matured, and many are sitting in accounts nobody is paying attention to.
In brief
Three million Child Trust Funds have matured, and many are sitting in accounts nobody is paying attention to. A CTF is a closed product nobody competes for anymore, so check its rate and its fees, and move it into a Junior ISA if both look poor. Originally reported by MoneyWeek.
Zombie accounts, real money
Child Trust Funds were closed to new savers in November 2011 and replaced by Junior ISAs. Providers moved on, and the old accounts were left to drift.
“This also made CTFS 'zombie' accounts as providers shifted their focus onto Junior ISA.”
Who has one
CTFs went to children born between 1 September 2002 and 2 January 2011, each with a £250 government kickstart, locked until the child turned 18.
£1.6 billion nobody claimed
If a parent never set up an account, HMRC opened a default one. Around 758,000 matured CTFs are still unclaimed, holding £1.6 billion between them.
The tax perks are identical
Both wrappers allow £9,000 a year, with no UK income or capital gains tax on returns, and both lock the money until 18. The tax case for switching is neutral.
One account versus two
A child can hold only one CTF, so moving between cash and investments can mean switching provider. A Junior ISA lets them hold cash and stocks and shares side by side.
“With a JISA, a child can hold both a cash Junior ISA and stocks and shares one simultaneously”
Post and phone versus online
Most Junior ISAs are opened and run online. Some CTFs still need a letter or a phone call to change anything or even to find out the balance.
A JISA grows up, a CTF stalls
At 18 a Junior ISA rolls into an adult ISA and keeps working. A CTF just sits there, stagnating until someone takes action.
Rates drop at maturity
Yorkshire Building Society's closed CTF pays 3.65%, falling to 2.35% once matured. Banks have no reason to compete for money in a product they cannot sell.
What the gap looks like
On a typical £2,200 pot, a CTF earns £80 a year, or £51.70 after maturity. Leek Building Society's top cash JISA pays 3.85%, roughly £30 more on the matured rate.
The 1.5% fee problem
HMRC's default stakeholder CTFs were mostly basic UK trackers with charges capped at 1.5% a year. A Junior ISA platform can cost 0.15% to 0.35% before fund fees.
“That's two decades of compounding working against these children rather than for them.”
Trackers versus global funds
Over 15 years the average global fund returned around 240%, while stakeholder CTFs tracked closer to bond and mixed-investment averages. Choice, not just cost, was the limit.
“This isn't a marginal saving, it's the difference between a fund that's barely kept pace with inflation and one that's actually done its job.”
How to make the move
The registered contact fills in a transfer form with the new provider, using the child's Unique Reference Number from the annual statement. HMRC's CTF finder on gov.uk tracks down lost details.
Check before you switch
Transfers take two to six weeks, the CTF must move in full and close, and not every provider accepts them. Compare charges, fund choice and any features you would lose.
In short
A CTF is a closed product nobody competes for anymore, so check its rate and its fees, and move it into a Junior ISA if both look poor.
