The Differences between the Junior ISA and the Child Trust Fund

The Junior ISA will be the new savings product for children, and will be available from November 2011. It is a replacement for the Child Trust Fund, which was scrapped early this year. There are similarities between the two schemes, but there are also some important differences.



The Junior ISA will be available to anyone who missed out on the Child Trust Fund, meaning it will be available to those born before September 2002 or after 2nd January 2011. An account will not be able to be opened on behalf of those who already have a Child Trust Fund. The Junior ISA will be a replacement for the Child Trust Fund, with parents of children who have a Child Trust Fund still being able to pay into that account.



One of the major advantages of the Child Trust Fund was that the government contributed £250 when a child was born and another £250 when the child turned seven. It was a major plus for less well-off families to affectively have £500 worth of investment invested on their behalf. It meant those who could not afford to contribute themselves would still be able to open an account on behalf of their children. These two payments have been scrapped for the re-vamped Junior ISA. This has been criticized by some, who say there is no incentive for those who can’t afford to make regular investments.



As with the Child Trust Fund, there will be a choice of investments with the Junior ISA, although the way it will work will be a little different. With the Child Trust Fund there were three options; a savings account, a stakeholder account, and a shares account. Just as with adult ISA’s there will be two choices with a Junior ISA, a Cash ISA and a Stocks and Shares ISA. Cash ISA’s will be similar to Child Trust Fund savings accounts, with Stocks and Shares ISA’s being similar to Child Trust Fund shares accounts. It will be up to parents to decide whether to go for the safer Cash ISA, or the potentially higher gains of a Stocks and Shares ISA.



With the Child Trust Fund, family and friends were able to contribute up to £1,200 a year to a child’s account. This is being trebled with the Junior ISA; they will now be able to invest up to £3,600 each year. This means that those who really want to, and can take advantage of the scheme, will be able to invest more, further helping their child in the future. The limit for those who already have a Child Trust Fund will be increased from the previous £1,200 to £3,600, to match the Junior ISA. It is hoped that those who already have a Child Trust Fund will get the same benefits as those with a Junior ISA.



As with the Child Trust Fund, the Junior ISA will allow parents and other family member to save for their children. They will then have access to the account once they turn eighteen, with any gains being tax free.



Andrew Marshall ©