HMRC Child Trust Fund warning as pots reduced from £2,200 to £12

A Child Trust Fund warning has been issued as people face their pots being reduced from £2,200 on average to a paltry £12. The average Child Trust Fund account is worth £2,212 according to the latest HMRC figures, but some are seeing their pots whittled down to just over a tenner.

Laura Suter, director of personal finance at AJ Bell, said: “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.

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“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.” Ms Suter said: “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.”

She warned: “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.”

Ms Suter said: “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.”

Ms Suter said: “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.”