The best ways to save for children

Six million children will be able to get a better deal on their savings from April 2015. From that date child trust funds (CTFs) can be transferred to junior Isas (Jisas), which pay much better rates.

CTFs were introduced by the last government to boost saving for children. All babies born between September 2002 and January 2011 were eligible for a CTF. The government paid £250 into every account at birth and a further £250 when the child turned seven – assuming the child came from a fairly poor family.

Parents and others can contribute up to £3,720 a year, and all money in the account is tax-exempt. Children can access the money when they turn 18.

The Coalition government replaced CTFs with Jisas in 2011. The government pays no money into Jisas, but most providers offer better terms for them than CTFs. That’s probably because Jisa providers are keen to compete for business as new babies are born. There’s no such incentive for CTF providers.

The accounts to go for

Given that CTFs can’t be switched to Jisas for over a year, it’s probably worth switching any CTFs you may have to the market leaders now. The current best cash-based CTF is Yorkshire Building Society’s Child Trust Fund, which pays 3% a year in interest. That includes a 0.7% bonus that will be withdrawn after a year.

The Share Centre offers a pretty decent sharebased CTF. You can invest in a wide range of shares, bonds and funds, and the Share Centre charges a relatively low administration charge of 0.5% a year (£10 minimum.) There’s also a 1% dealing charge, plus fees to the fund manager if you invest in a fund.

The top cash Jisa is the Halifax Junior Cash Isa, which pays 6% a year in interest. That’s as long as the ‘registered adult’ who manages the account also has a cash Isa with Halifax. The Danske Bank Junior Cash Isa is attractive too – it pays 4% interest.

If you’d rather invest your child’s cash in the stock market, take a look at the JP Morgan Junior Isa. You can invest in a wide range of funds and you won’t have to pay any annual charge. You’ll just have to pay a £10 dealing charge when you trade, as well as charges levied by any fund you invest in.

Merryn

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