Junior Isas, new tax-free savings for under 18s, launched this week. They’ll replace child trust funds (CTFs), but if your kid’s already got a CTF they won’t be able to benefit from Junior Isas – surely that can’t be fair.
In a rather remarkable turn of serendipity, my two young cousins were born on the same day. The eldest is now three, while her wee sister delighted us earlier this year.
Being a money journalist, I insisted on giving them both a small amount of cash to put away and grow over the years. Sarah’s little nest egg went into a child trust fund her parents had prudently opened and Victoria’s will now be placed into a Junior Isa, which launched to much fanfare earlier this week.
Sadly, though, despite being three years her senior, my precocious Sarah will find herself worse off than her younger sibling. And, at the moment, there’s absolutely nothing she can do about it.
Trust funds fall behind
You see, the Junior Cash Isas that entered the market this week are paying competitive rates of interest of around 3%, while their forgotten predecessor, child trust funds, are paying much lower rates. When we looked into the CTF market earlier this year, we found some CTFs had rates as low as 1%, while the average sits at around 2.4%.
Sarah is losing out on two fronts. Firstly, any child with a CTF is trapped and unable to open a Junior Isa. Now that CTFs are no longer the government’s child savings solution, there’s very little incentive for providers to up their rates and compete.
And secondly, she has no idea when she’ll be able to transfer her poorly performing savings into a Junior Isa, because The Treasury made no provision for it when drawing up the regulations for the new Isas.
Suffer the little children
While I’m positive about the launch of Junior Isas, I think the Treasury has made a major misstep in not allowing existing CTF holders to transfer into this new savings product. The Treasury says that it’s working towards doing so, but every day it’s not resolved is another that allows children’s savings to suffer.
Now, more than ever, with global economic turmoil, low interest rates and inflation, kids need the best possible start in life. Denying them the good interest rates of Junior Isas just throws another obstacle in front of their future.