The options for child trust funds

For example, a typical shares CTF that tracks a stock market index such as the FTSE All-Share charges 1.5% a year. If you opted for a tracker Jisa, you could pay as little as 0.42% a year. The charges can make a big difference to the return on your investment. Let's say you have £3000 already in a child trust fund and make a monthly contribution of £100 for 12 years until the child reaches 18. If the fund grows at 6% a year, it would be worth £24,094 when the child reaches 18, assuming an annual charge of 1.5%. But if you invested the money in Fidelity's UK Index fund that charges 0.42% a year, the fund would be worth £26,103, a difference of more than £2000.

CTFs were set up by the Labour government in 2005. Every child born on or after September 2002 was given a £250 voucher by the government (poorer households received £500), which they could invest tax-free in a CTF in either cash or shares until the child reached the age of 18. The government made an additional £250 or £500 payment when the child was seven. But state payments to CTFs were chopped from £250 to £50 from August 2010. All payments stopped completely in January 2011 and CTFs were replaced by Junior Isas.

Parents, grandparents and other relatives and friends could top up a CTF, but nearly one in four accounts has never received any additional contributions, according to research by Scottish Friendly. In addition, an estimated 1.4 million of the 6.3 million CTFs could now be worth less than the government contribution of £250, their value eroded by charges. Calum Bennie, savings expert at Scottish Friendly, says: "It's never too late for parents to take back control and make a positive impact on their child's nest egg. Taking positive action now could have a significant impact on the final sum a child will receive when they turn 18, allowing them an important head start in life and helping to teach them a valuable lesson on the importance of saving."

A Jisa offers the same tax perks as a CTF and parents can save the same amount into a Jisa as a CTF - up to £4080 in the 2015-16 tax year. You can choose a cash or a shares Jisa and the child cannot access the savings until he or she is 18.

Most experts recommend a stocks and shares Jisa because parents are usually investing over a lengthy period and equities tend to outperform cash over the long term. Danny Cox, a chartered financial planner at Hargreaves Lansdown, an independent financial adviser, says: "Parents should take this opportunity to review whether they are taking the right investment strategy with their child's money. About 80% of CTFs are held in cash, when it's clear that over the long term the stock market offers considerably greater rewards, though with more thrills and spills along the way."

The Lindsell Train Global Equity fund has a concentrated portfolio of about 30 companies hand picked from around the world and is one of Cox's recommendations. Cox also likes First State Asia Pacific Leaders, which offers exposure to some of the most dynamic economies in the world, including China, India and Taiwan.

Parents who would prefer to stay closer to home could consider Legal & General UK Index, which tracks the FTSE All Share Index.

Then there's the Scottish Mortgage Investment Trust, which has nothing to do with Scotland or mortgages. It is a global investment trust with some pretty punchy positions in technology and emerging markets stocks, such as Google, Facebook and Amazon, as well as Chinese tech and e-commerce giants Baidu, Tencent and Alibaba. The fund is also a favourite of Jason Hollands, managing director of Tilney Bestinvest, another financial adviser, but it is not for the faint-hearted.

There are about one million cash CTFs accounts, but they often pay lower rates than cash Jisas. The best-buy cash Jisa is from Coventry Building Society and pays a tax-free annual rate of 3.25%. Nationwide also pays 3.25% in its Smart Junior Isa. The top rate on a cash CTF is 3% from Yorkshire building society, but the rate includes a 0.7 percentage point bonus, which will disappear after 12 months.

Some experts have questioned the value of cash Isas and Jisas following the recent budget announcement that the first £1000 of interest on any savings account will be tax- free for non higher-rate taxpayers.

But it is worth bearing in mind that the £100 rule. If a parent gives money to a child and it earns interest of more than £100 a year, it is taxed as the parent's own. The £100 rule does not, however, affect parental gifts to cash Jisas.

If you want to transfer your CTF to a Jisa, you should request an application and transfer form from the Jisa provider. The form will ask for your own details, the child's details and the account you wish to transfer and must be completed by the registered contact for the child trust fund. If you have lost track of your CTF, you can trace the account through the HMRC website (www.hmrc.gov.uk).

The length of time it takes to make a transfer will vary from provider to provider, but could be up to 30 days. There are no exit fees if you transfer from a stakeholder CTF or a cash CTF. However, non-stakeholder CTFs could levy a transfer fee. Remember, too, that you cannot hold both a CTF and Jisa for the same child. You have to transfer the whole amount and close the CTF.

Action plan

Review your CTF. Could you get a better deal with a Junior Isa, perhaps earning higher interest or paying lower charges?

Think about investing in shares rather than cash. If your money is in a cash account you could struggle to beat inflation.

Check for transfer charges. Stakeholder and cash CTFs are not allowed by law to charge for transfers. However, non-stakeholder CTFs can apply a transfer charge.

Complete the Junior Isa provider's application and CTF transfer form. After the transfer of the savings from the CTF to the Junior Isa, the child trust fund is closed.