Following months of campaigning from savings institutions and investment companies, George Osborne has finally proposed that parents should be able to transfer old child trust funds into Junior ISAs.
JISAs were introduced in November 2011 as a means to encourage tax-free saving for children, replacing their predecessor the child trust fund which was scrapped earlier that year.
However, the six million plus holders of child trust funds have been prohibited from moving their money into newer Junior ISAs – which in many cases have offered higher rates of interest or better terms – disadvantaging younger savers simply by virtue of their age.
Danny Cox, head of financial planning at Hargreaves Lansdown, said: "Common sense has broken out at last. Child trust funds have been in terminal decline since 2011, seeing millions trapped in expensive products or suffering lower rates than their Junior ISA
counterparts. This consultation will pave the way for a significant improvement in choice and outcomes for more over six million children and ultimately lead to a full merger."
Junior ISAs work in much the same way as adult ISAs - with both cash and stocks
and shares options available. The annual allowance is lower however at £3,600 and the money can only be accessed once the child turns 18. At this point, it can be rolled into an adult ISA.
Regular investment into children savings schemes can be a very effective means of saving for a child or grandchild. According to Hargreaves Lansdown £100 a month paid into a Junior ISA
over 18 years could grow to around £38,000 (assuming 6% annual return).
In the UK, stocks are fixed-interest securities such as corporate bonds and government gilts. In the US, stock is the most widely used term for shares; a diminutive of the term “common stock”.
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.