- Small Child Trust Fund accounts could suffer from fixed fees, with one holder recently left with just £12.39 on maturity, according to reports
- 1.2 million Child Trust Funds are worth under £500, according to HMRC
- A small Child Trust Fund worth £500 with a charge of £25 would see no gain after fees on 5% growth
- Child Trust Funds charging percentage-based charges typically cost 1.5% a year
- Many Child Trust Fund holders could benefit from switching to a Junior ISA
Laura Suter, director of personal finance at AJ Bell, comments:
“As highlighted by a Public Accounts Committee (PAC) report published last year, many Child Trust Fund providers are charging huge sums for managing the accounts. The report indicates many accounts are charging 1.5% annually for a portfolio of passive funds.
“Child Trust Fund accounts vary and while some are limited to a maximum 1.5% fee others can levy a fixed cost each year. For small pots of money a fixed fee can be disastrous and in some cases it could wipe out any investment growth altogether.
“On a £500 account a £25 annual charge means you need to achieve more than 5% growth to make any money at all in a year.
“One recently reported case saw an unfortunate saver left with just £12.39 in their account after charges, according to reports. That’s about enough to drown your sorrows in a pint and pick up a kebab on the way home – you’ll need to walk though as there isn’t enough to cover the taxi too*.
How charges impact returns
“The average Child Trust Fund account is worth £2,212 according to the latest HMRC figures**. Assuming the account charges 1.5%, as highlighted by the Public Accounts Committee, compared to a Junior ISA charging 0.25% invested in a 0.15% tracker, the difference in charges could be around £25 a year. Over five years you could have about an extra £150 by moving to the lower charging Junior ISA, assuming both deliver 5% a year returns before costs.
“Around 200,000 Child Trust Fund accounts are worth over £10,000. On a larger account of this size the impact of high fees really adds up. Using the same example, the Child Trust Fund would be worth around £675 less after five years.
“Fixed fee accounts are likely to be most problematic for small accounts. Over 2.7 million accounts are worth less than £1,000, of which 1.2 million have less than £500.
“On a Child Trust Fund worth £1,000 a £25 fixed charge is more than five times the fees charged on a Junior ISA with a 0.4% cost for the platform and fund combined.
“If you have a Child Trust Fund worth £500 a £25 fee is equivalent to 5% a year, likely eating up most or all of your investment gains. On smaller accounts the charges could even be worth more than the investment growth.”
£2,212 Child Trust Fund charging 1.5%, compared to a Junior ISA charging 0.25% and 0.15% fund costs:
Source: AJ Bell. Assumes 5% growth before charges. JISA charges 0.25% platform fee, and 0.15% fund costs. CTF charges 1.5% for administration and investments.
Find a CTF
“Of the £10 billion in Child Trust Fund accounts there’s an estimated £1.4 billion sitting in unclaimed matured Child Trust Funds, and over half of the money in these accounts – £776 million – matured over a year ago (see table). Many parents and children aren’t aware they even have the account, or don’t know who the money is with or how to track it down.
“But in the rush to claim the money you should make sure you don’t pay someone a huge sum to track it down. There are services out there that will help you to find your lost account, but they will take a chunk of the savings pot. It’s free and relatively easy to find the money: you can go to the online tool at gov.uk and fill in a form to trace the money, using your national insurance number and date of birth.
“Once you’ve tracked down the money you can choose what to do with it. If you’ve reached the age of 18 already your options are to transfer it to an adult ISA or withdraw the money. Anything you transfer to an adult ISA at maturity will not count towards your annual ISA allowance, which is £20,000 for over 18s.
“Around 3.5 million holders still have an account that hasn’t matured yet, meaning the holder is yet to turn 18. If you’re still under 18 you could transfer it into a Junior ISA account, where the charges will likely be lower, and you’ll have a much bigger investment choice. The money will still be locked up until you turn 18, but the tax-free benefits of ISA investing still apply. If you’re transferring the Child Trust Fund you need to move over the entire sum of money to a Junior ISA as you can’t have both types of account open at once. But helpfully the amount you transfer won’t count towards your annual Junior ISA limit. This means that you can transfer the entire Child Trust Fund into a Junior ISA this tax year and still add up to £9,000 to it.”
£10 billion held in Child Trust Funds:
*Kebab £7.57 (ONS), Draught lager average price per pint £4.79 (ONS).
**Annual Savings Statistics 2024 (HMRC).
