Child savings options under review

Coins in handMillions of children will see their money rescued from savings accounts which have fallen into "terminal decline", according to Budget proposals.

The Government will consult on options for allowing parents to unlock the £4.8 billion currently trapped in Child Trust Funds (CTFs) held by more than six million children to transfer them into Junior Isas, also known as Jisas, which often offer more generous returns.
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The proposals could result in parents being left to decide whether or not to transfer their children's cash into a better deal, or CTFs may simply end up being merged with Junior Isas. Responses to the consultation will be published before the summer and it is unclear exactly when the rules could be changed.

CTFs were introduced under the previous government, but the £250 which was paid into them when the account was opened to start off a lifetime savings habit was eventually phased out.

In recent years, competition to offer the most attractive deals has been concentrated around Junior Isas, which were set up in 2011.

Cash which is placed in CTFs and Junior Isas is locked there until adulthood, and until now a child who holds a CTF has been barred from being able to have their savings transferred into a Junior Isa.

According to MoneySupermarket.com's "best buy" tables, the top Junior Isa is Halifax's Junior Cash Isa, which offers a rate of 6% AER - while the best of the CTFs pays a rate which is half of this at 3% AER and is provided by Yorkshire Building Society.

Clare Francis, editor-in-chief at MoneySupermarket, said that many CTFs have become "uncompetitive" as providers focus their attention on Junior Isas.

She said: "It was a ridiculous situation that Child Trust Funds (CTF) couldn't be transferred into Junior Isas so it is great news that the Government has changed the rules. Parents whose children were born between 1 September 2002 and 2 January 2011, will now be able to switch their kids' CTFs into Junior Isas."

Both CTFs and Junior Isas have the same annual limits of £3,600 for 2012-13 and £3,720 in 2013-14. Junior Isa funds are locked in until the child reaches 18, when the account becomes an adult Isa by default.
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