The 34,000 curse of child trust funds: Six million children are barred from best savings deals
More than six million children are losing out on a potential nest egg of 34,000 because the Government has imprisoned their savings in defunct child trust funds.
These children are being denied the chance to take out new Junior Isas that pay more than twice as much interest and are three times cheaper to run than the child trust funds they are forced to keep.
As a result, a Money Mail investigation has revealed, even those in the best paying child trust fund will be 33,805 worse off after 18 years of saving than those in the best Junior Isa, if the full allowance is paid in.
Divide: Emma and Allan Spencer (37 and 38) with (left to right) Lucy 8, Evie 2, Sophie 10 and Charlie 5 months
'Please let us do the best for our children'
Emma Spencer, 37, and her sales manager husband Allan, 38, are keen to be able to transfer their children’s child trust funds into Junior Isas.
Two of their four children, Sophie, ten, and Charlie, five months, have Junior Isas with Nationwide, which Emma and Allan opened as soon as they became available last November.
They pay 3 per cent until October 2013 — a rate far better than any cash child trust fund from major providers. Eight-year-old Lucy, and Evie, two, have a CTF and earn a lower rate of 2.1 per cent.
Allan and Emma, from High Wycombe, Bucks, add to the savings on a regular basis — the same for each child — while grandparents and other relatives put money away for the children, too.
Emma says: ‘It is unfair that they are treated differently. It means that whatever we do to treat them the same, they will end up with different amounts.’
Treasury blocks children on a fairer savings deal
But despite this glaring gulf, the Treasury refuses to allow children whose money is locked away in child trust funds the chance to move it elsewhere.
A number of the biggest banks, building societies and investment companies have backed Money Mail’s Free Our Child Trust Funds Now campaign.
Lloyds Banking Group, which includes Halifax, has been joined by HSBC, Nationwide BS, Skipton BS, Fidelity, Invesco Perpetual, Jupiter and M&G.
These big High Street names all agree the best way to get children into the savings habit is to offer them the best rates and cheapest funds.
Richard Marriott, head of savings at Nationwide, says: ‘We wholeheartedly support Money Mail’s campaign to allow parents with child trust funds the choice to transfer their savings into the new Junior Isa.
‘We are in favour of any initiatives that encourage parents and young people to save, and so we feel the Government should give all parents the choice of keeping their money where it is or moving it to a Junior Isa.’
The fight to get out of obsolete accounts
Since Money Mail launched its campaign, parents who added savings to child trust funds (CTFs) say they feel cheated. They believed CTFs would be a way of saving for their child’s future because good rates and funds would always be available.
The Treasury believes youngsters in Junior Isas and CTFs are treated the same, as parents can save identical sums of money — 3,600 a year — into both.
But CTFs, on offer to children born between September 1, 2002 and January 2, 2011, are now closed. And children with these accounts have limited choices. There has already been an 11 per cent fall in the number of companies willing to offer CTFs.
Money Mail fears money in these accounts will be left to fester. Banks and building societies will have no obligation to offer good rates, as the cash is essentially trapped for 18 years.
The choice of investments on offer is already incredibly limited and comes at a high price. And it is predicted that fees will continue to rise.
For example, Witan, which runs the Jump CTF, has just announced it is hiking its annual management charge from 1 per cent to a flat fee of 30 — penalising any saver with less than 3,000.
Someone with just the Government’s 250 contribution will essentially be paying a hefty 12 per cent annual charge.
It’s only now, as more big names launch Junior Isas, that the pathetic deal being given to child trust fund savers is highlighted.
The 34k savings gap
The best Junior Isa savings rate is 6 per cent, from Halifax. The best on offer from a child trust fund is 2.65 per cent. If parents saved the full 3,600 allowance every year for 18 years, the child with the Junior Isa would be 33,805 better off.
Saving 100 a month they would be 11,228 worse off in a CTF.
Parents who put their child’s money into investments will also benefit in a Junior Isa. Competition means charges are low, at around 0.5 per cent, while in a child trust fund they can be as high as 1.5 per cent, even on a basic stock market tracker.
Figures calculated by Fidelity show this would strip 11,474 from the savings of a child trust fund saver, compared with what they would make in a Junior Isa.
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Edward Bonham Carter, chief executive of Jupiter Asset Management, says: ‘It seems inconsistent and unfair that children born during one regime face greater investment restrictions than those born during the current one, and it is also potentially confusing for the parents.’
Tom Stevenson, investment director at Fidelity Worldwide Investment, says: ‘Children with CTFs are being discriminated against, as they do not have the same investment opportunities as those children who, simply because of when they were born, are entitled to invest in a superior product.
‘Some parents are potentially faced with one system for one child and a different one for their siblings.’
The Treasury says it would take a change of legislation to allow CTF money to be moved into a Junior Isa.
A spokesman for the Treasury says: ‘We’ve trebled the savings limit on child trust funds to 3,600 to ensure that children with a CTF are not disadvantaged.
‘The launch of the Junior Isa is a clear demonstration of the Government’s commitment to encourage saving for children.’
- The 34,000 curse of child trust funds: We reveal how six million children are barred from the best savings deals
- Britain"s biggest bank throws weight behind our Free Our Child Trust Funds Now campaign
- Child savings: Beware the High Street Scrooges
- Saving and investing for children: How to pick the best Isa or investment for your child
- Best savings rates: Internet, branch and over-50s savings accounts