Junior Isas and Child Trust Funds: Families must avoid these 2 costly mistakes

Martin Lewis provides advice on children's savings accounts

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Children could end up losing several billion of pounds as families either leave their JISA and CTF funds in poor value cash accounts, or lose track of them altogether. Experts are encouraging parents and grandparents to review their investment choices and track down any lost accounts.

New research suggests children are currently losing more than £3 billion in Junior ISA and Child Trust Fund growth, and their losses will rise over time

This is money they desperately need to fund their education, top up their earnings or take the first step onto the property ladder.

Experts are urging parents and grandparents to review their JISAs and CTFs sure the money is invested in the right place, while those who have lost track of their accounts should take time to track them down.

Almost a million families invest in JISAs for their kids, contributing almost £1billion in total, or an average £1,000 per child.

Some are paying a lot more than that, which means their lucky children could come into large sums of money when they turn 18, and it legally belongs to them.

You can put JISA money either into cash or stocks and shares, but investment experts say too many leave large sums in cash earning next to no interest.

Two thirds of JISA money is held in cash, even though savings rates have plummeted and stock markets have boomed since the tax-free savings wrapper was launched in 2011.

Cash JISAs have paid an average of 2 per cent a year since then, while a global spread of stocks and shares would have returned a superior 11 per cent, according to figures from wealth manager Quilter.

It calculates that children could collectively have £1.2billion more if their JISAs had been invested in shares.

Quilter’s financial planning expert Heather Owen said cash is no longer king given today’s record low interest rates: “Inflation may erode its value, and children will miss out on the chance to build their financial prosperity by investing instead.”

Some parents and grandparents may be reluctant to invest children’s money in shares but youngsters can afford to take higher risks as they have time to recoup short-term losses.

Owen said by favouring shares over cash, families could “create a new generation of investors entering adult life with the best possible financial start”.

Separate research shows that another £2.2billion held in CTFs is likely to go astray, with one in four accounts “lost or dormant”.

CTFs are the predecessor of the JISA, and around 6.3 million were set up for children born between September 1, 2002 and January 2, 2011.

Originally, each child received a free voucher worth £250 (£500 for lower income families), with a further top up at seven. These were scaled back in August 2010.

Some 1.8 million children whose parents didn’t actively set up a CTF still have access to that, plus growth on those vouchers, through government portal Gov.uk.

They should track it down or risk throwing valuable money away.

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The first wave of CTFs matured in September 2020, a total of 525,000, yet almost six in 10 lay unclaimed by May 31.

More than 300,000 are missing out so far and the total could top near 1.5 million over time, according to research from Gretel, which helps people trace lost savings, investments and pensions.

Chief executive Duncan Stevens said: “Dormancy and loss is a real issue, at a time when many young people could benefit from accessing cash that is rightfully theirs.”

Gretel estimates that almost 20 million have become disconnected from financial services products including Isas, CTFs, bank accounts, life insurance policies and pensions.

They have a collective value of more than £50 billion and people should take effort to track them down, Stevens said.

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