£2billion children’s savings black hole



Savings

Savings

Fears have emerged of a £2billion savings black hole after the government confirmed children with money in the existingChild Trust Fund would be unable to transfer it to the new savings model planned, the Junior ISA.

Any child born between September 1st 2002 and January 3rd 2011 will be forced to keep hold of their Child Trust Fund and won’t be able to open a Junior ISA when they hit the market in November.

The big fear is that Child Trust Funds, whilst offering reasonable savings rates at the moment, will drop their interest rates, and providers will concentrate solely on the Junior ISA, leaving customers with a Child Trust Fund to rot on the sidelines.

Some may argue that the contribution that children with a CTF got from the government makes them worthwhile, but it remains to be seen if the £50 bonus some children were afforded makes much of a difference.

It will also be interesting to see how many parents actually use a Junior ISA to save for their children, seeing as they will no longer be compulsory, or tied to any financial incentive.

The Child Trust Fund was launched by the government as a way to encourage parents to save for their children’s future, and each child was given a £250 voucher when they were born, and then a £250 voucher on their seventh birthday.

This soon became unaffordable and figures showed it wasn’t working so the vouchers were reduced to just £50 by the end with over 5.5million child trust funds opened, 1.1million of those by the government on behalf of parents who couldn’t be bothered. Of those opened, only 1million have ever topped them up, with an average of just £24, which does give the impression the Junior ISA could flop if not marketed correctly.

For those parents who have been contributing to a Child Trust Fund worried about the interest rate it may be worth looking at a Junior Bond or similar children’s savings products without the money tie in, as you can move this around as interest rates on savings rise and fall.

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