Pound LandscapeIt seems the Government has finally relented and will now allow transfers from Child Trust Funds to Junior ISAs.

Over six million children have around £5 billion of savings in Child Trust Funds (CTFs), which were introduced by the second Labour government as a way of encouraging children and their parents to save. The coalition government replaced CTFs with Junior ISAs in 2011 although children with CTFs have so far not been able to transfer their savings into a Junior ISA, which pay better rates of interest.

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Child savers with CTFs, as well as their parents, were disappointed after the recent Autumn Statement, which contained no news to rid them of the pain of poor interest rates. However, Chancellor, George Osborne, has now announced that the Government will allow transfers from CTFs to Junior ISAs from April 2015.

Announcing the move, Mr Osborne, said: “The Government supports hardworking families who want to save for their children. So I’m delighted that, as a result of these changes, over 6 million children who currently have savings in a child trust fund will be able to benefit from better returns and lower charges on those savings in the future.”

Great news for child savers, but why wait two years

The news that younger savers will be able to transfer their money from CTFs to Junior ISAs will please millions of savers, as it should now mean they have access to higher rates of interest and may well pay lower charges.

However, savings experts have questioned the need to wait for two years before the change is brought in and have called for CTFs to be automatically converted to ISAs, in the same way Personal Equity Plans (PEPs) were a number of years ago.

Junior ISA limits

Junior ISAs tend to pay better rates of interest than CTFs, or for those who decide to invest their cash, offer a wider range of options and lower charges.

Parents and grandparents can pay up to £3,720 into a Junior ISA in the current tax-year. No tax is paid on the interest received and when the child reaches the age of 18 the account automatically converts to an ‘adult’ ISA.