Savers urged to make vital check as hidden fees could ‘wipe out pots’ | Personal Finance | Finance
Britons with Child Trust Funds are being urged to check their accounts to make sure they’re not losing money due to fees they’re unaware of.
One holder was recently left shocked after finding his account had just £12.39 on maturity after surprise administration fees stripped his pot.
Child Trust Funds are long-term, tax-free savings accounts established by the Government, which deposited £250 for every child born between September 1, 2002, and January 2, 2011.
Young people can take control of their Child Trust Fund at 16 and withdraw funds when they turn 18 and the account matures.
However, the savings are held by banks, building societies, or other providers, not the Government. These providers often charge administrative fees, typically 1.5% per year, which many may be unaware of.
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.
“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.”
The average Child Trust Fund account is worth £2,212 according to the latest HMRC figures, and hundreds of thousands of young adults are being urged to claim them.
Those who do not know where their account is can use the online tool on GOV.UK to find out. Claimants will need their National Insurance number – which can be found easily using the HMRC App – and their date of birth to access the information.
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.”
However, 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.”
Once the money has been tracked down, people can then choose what to do with it. 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.”
Around 3.5 million holders still have an account that hasn’t matured yet, meaning the holder is yet to turn 18.
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.”
