Child Trust Fund savings could be wiped out by high provider fees, warns AJ Bell.
Following reports that one holder was recently left with just £12.39 on maturity, the investment platform said Child Trust Fund providers are charging huge sums for managing the accounts, with a Public Accounts Committee report finding that many accounts are charging 1.5% annually for a portfolio of passive funds.
According to the latest HMRC figures, the average Child Trust Fund account is worth £2,212. Assuming charges of 1.5%, compared to a 0.25% charge for a Junior ISA invested in a 0.15% tracker, the difference in charges could be around £25 a year. Over five years, someone could have about an extra £150 by moving to the lower charging Junior ISA.
Around 200,000 Child Trust Fund accounts are worth over £10,000. On a larger account of this size, AJ Bell said the high fees would result in the account being worth around £675 less after five years.
However, fixed fee accounts are likely to be most problematic for small accounts, according to AJ Bell. Over 2.7 million accounts are worth less than £1,000, of which 1.2 million have less than £500.
Suter commented: “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.
“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.”
AJ Bell has urged people to track down their Child Trust Fund, with an estimated £1.4 billion sat in unclaimed matured Child Trust Funds, with half of this amount already maturing over a year ago.
For those over the age of 18, there is the option to transfer to an adult ISA or withdraw the money. Anything transferred to an adult ISA at maturity will not count towards the annual ISA allowance, which is £20,000 for over 18s.
For those under 18, the funds could be transferred into a Junior ISA account, where the charges will likely be lower and offer a bigger investment choice.
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