The first wave of Child Trust Funds (CTFS) and Junior ISAs start to mature this month, potentially gifting teenagers a nice little windfall on their 18th birthdays.
CTFs were launched in 2005, as a scheme to give every child some savings. Available for children born on or after 1 September 2002 – children who will celebrate their 18th birthday this month – the government contributed an initial sum in the early days, before the scheme was stopped in 2011 and replaced by Junior ISAs.
Transfers from CTFs to Junior ISAs were permitted from April 2015 and many parents moved the money to benefit from a wider choice of providers and investments. Up to £9,000 can now be invested in a Junior ISA on behalf of a child each year, and the beauty is, anyone can contribute: parents, wider family and friends.
Some £700 million of CTF assets will mature this tax year and a total of £7.5 billion over the next decade*. Additional money will also start to mature from Junior ISA accounts.
Savings into both could be put into either cash accounts or stock and shares accounts and HMRC statistics suggest that cash has been more popular, with more than half of CTF vouchers allocated to bank or building society cash accounts.
However, those putting savings into cash would have missed out on greater returns because despite experiencing two stock market crashes in the intervening years – the global financial crisis and the coronavirus pandemic – stocks and shares have performed better.
Cash CTFs would have turned a £1,000 investment into about £1,715 today^. Not all funds were available for CTFs, but as a proxy, the average UK equity fund would have turned the same initial investment into £2,310^. If a parent or guardian chose to invest overseas, the amount would have become £3,393^ in the average global equity fund and £3,681 in the average emerging markets equity fund^.
The best performing fund over the period was Baillie Gifford Global Discovery, which would have given a huge windfall of £12,162^. AXA Framlington Global Technology fund is also in the top five best performing funds and would have produced £11,244^.
|Rank||Fund name||£1,000 invested on 11 April 2005 no worth^:|
|1||Baillie Gifford Global Discovery||£12,162|
|2||AXA Framlington Global Technology||£11,244|
|3||First State Greater China Growth||£9,575|
|4||Invesco China Equity||£8,089|
|5||Rathbone Global Opportunities||£6,758|
|6||BlackRock European Dynamic||£6,744|
|7||Stewart Investors Asia Pacific Leaders||£6,569|
|8||Marlborough UK Micro Cap Growth||£6,502|
|9||AXA Framlington American Growth||£6,441|
|10||Barings Europe Select||£6,266|
Darius McDermott, managing director: “My son Luke was born early enough to receive the £250 from the government, but my daughter Isla just got the £50. CTF providers were very limited and charges were high, so I transferred to a Junior ISA as soon as I could. Our general strategy has been to invest in high risk assets, like India, GEM, and gold – the key thing is investing monthly, which we’ve done from the start, because firstly it's a very good savings discipline and secondly you get pound cost averaging. We’ve also invested a lump sum each year on the children's birthdays. With hindsight we should have invested more in smaller companies. When Chelsea launched our own managed funds, we transferred the Junior ISAs into the VT Chelsea Managed Aggressive Growth fund.”
Juliet Schooling Latter, research director: “We invested in AXA Framlington Global Technology fund for my husband’s two older boys, as they were interested in tech and it’s done very well for them. Our three younger girls have the VT Chelsea Managed Aggressive Growth fund. I’m hoping it will pay for their university fees so that I don’t have to! Their grandparents like to add to their Junior ISAs on birthdays and at Christmas and just buy them a small present. I also add on birthdays, as well as contributing a small monthly amount.”
Sam Slator, head of communications: "My eldest son Alex was born in August 2010, so he was just eligible for the £50 from the government. I opened a cash CTF initially, as I knew the scheme was stopping, with a 3% interest rate from the Yorkshire Building society - not a bad rate at the time. As soon as it was possible to transfer the CTF to a Junior ISA though I moved it across, investing in the Rathbone Global Opportunities fund. It remains there today and my younger daughter Ana's Junior ISA is invested in the same fund. My mum invests a small amount into both accounts on a monthly basis, whereas I add money as and when I have it to spare."
Belinda Venning, senior research support: “I have a little bit of money put aside in a Junior ISA for my three-year-old son, Aleksander. I chose the VT Chelsea Managed Aggressive Growth fund too. I don’t pay anything into it myself at the moment, but my parents make a monthly contribution.”
Staci West, digital content producer: “I don't have children of my own, but the beauty of Junior ISAs is that you don’t need to be a parent to contribute. Just last month we set up a Junior ISA for our six month old niece, Nayla-Rose, to potentially help with University fees in the future. We contribute £20 a month and, as she has an extremely long time horizon, we’re investing monthly into VT Managed Chelsea Aggressive fund, with top ups at Christmas and on her birthdays.”
*Source: A freedom of information request to HM Revenue & Customs from Quilter.
^Source: FE Analytics, total returns in sterling, 11 April 2005 to 10 August 2020, using the Bank of England base rate +2% as a proxy for cash CTFs, the IA UK All Companies, IA Global and IA Global Emerging Markets sector peer groups.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet's views are her own and do not constitute financial advice.