“Transferring Arianna’s child trust fund motivated me to open junior ISAs for my other two daughters”

“I’ve almost halved the cost of charges for Arianna’s junior ISA - and Alexia and Alyssa are no longer stuck with paltry interest rates on their savings accounts,” says Amir Nooriala of his decision to transfer his eldest daughter’s child trust fund (CTF) and open junior ISAs for his two younger daughters.

Amir, who works for a tech start-up in London, opened his daughter Arianna’s stocks and shares CTF a few weeks after her birth in 2010. “I opened an account with One Family that had fees of 1.5% a year. I had tried to open with Barclays where I bank but that wasn’t possible. There were few choices back then.”

After a decade of maximising contributions to the CTF he was appalled to see poor returns. “There was no real increase in value - the performance was below inflation!”

What is the difference between a CTF and a junior ISA?

CTFs are tax-free accounts for children born between September 1, 2002, and January 2, 2011. Launched by then-chancellor Gordon Brown with the aim for every child to have a financial nest egg when they turned 18, CTFs either hold cash, just like a savings account, or investments. Parents and guardians opened the accounts with a government voucher worth £250 or £500 depending on the family’s income (reduced to £50 and £100 respectively from August 2010).

Junior ISAs were launched in 2011 and from April 2015 parents were able to transfer the money in a CTF into a junior ISA. Cash junior ISAs often pay more interest than cash CTFs, while stocks and shares junior ISAs are often cheaper and provide more investment choice.

Transfer to a junior ISA

After reading several articles about junior ISAs, Amir decided to transfer Arianna’s CTF which had £32,000 - but it turned out to not be so easy. “I had a bad experience with One Family. I could not get details from them, when I got through to them I did a paper form, there were three bizarre attempts at sending me cheques which never arrived. It was so frustrating.”

After downloading Hapi, a provider that specialises in investment accounts for children where family and friends can contribute, he was impressed enough to contact them for help. “Hapi did everything. They had to write several letters over several months to One Family. It really took some persistence but in the meantime I received frequent updates from Hapi which was reassuring.”

Hapi charges an annual platform fee of 0.50% to manage investments, plus an additional 0.25%-0.30%, depending on what investments you pick. Amir now pays 0.8% in fees - just over half of the 1.5% he previously paid with One Family. As all charges ultimately eat into your child’s returns it is best to keep fees as low as possible.

A wider choice of investments with junior ISAs

Not only is Amir saving on fees, he has a wider investment choice. “Ethical investing really appeal so I split Arianna’s investments: BlackRock ESG multi-asset Growth Portfolio, iShares Global Clean Energy UCITS ETF, iShares Global Water UCITS ETF, iShares Healthcare Innovation UCITS ETF.

Investing globally and across different industries acts as a source of stability during market highs and lows. It means that any volatility in one area of your investments (for example, tech, healthcare, entertainment, renewable energy, property, construction) will be balanced out by other areas. Similarly, any volatility in a certain part of the world where you are invested (for example, Asia, the US, the UK, Australia) will likely be balanced out by markets in other parts of the world.

Overhauling their investing strategy for the rest of the family 

After transferring Arianna’s CTF to the junior ISA, Amir found himself motivated to open junior ISAs for Alexia, 6, and Alyssa, 2. “Because I had such a poor experience with One Family I had just opened a standard childrens’ savings account for them.” 

As the children have many years before they turn 18 the longer time frame allows a parent to take some investment risk, because the chosen investments will have the opportunity to ride out any stock market volatility - and hopefully give higher returns than those from a savings account with low interest rates.

Amir and his wife Claire aim for all three daughters to either have a deposit for a home or a contribution towards a deposit. “I put a lump sum on their birthdays. I try to max out the annual allowance (currently £9,000 for 2021/22) but it’s not always possible with three children. They also benefit from contributions from their grandparents - which is so easy, I simply send them a link to deposit what they want via open banking.”

While he knows it is best to check investments once or twice a year, Amir appreciates the ease of access to viewing the junior ISAs. “When I was with One Family it took a spreadsheet of details to login in - now I can view all three children’s pots at any time.”

Natasha tells The Money Edit about learning to invest via a stocks and shares ISA.