CHILD TRUST FUNDS INFORMATION

What is a Child Trust Fund?

A child trust fund (or CTF) is an investment plan or savings account for children. They are designed to be long-term. Through a CTF, the Government makes two payments. One payment occurs when the CTF opens, and when the child reaches the age of 7, the Government makes a second payment into the account. Family and friends of the child can make payments into the account too.

The child will not be able to access the money in the CTF until they reach the age of 18, although the money will belong to them.

CTFs were designed so that children can gain a good understanding of the concept of saving and financial products.

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How Much is Paid into a Child Trust Fund?

If a child is eligible for a CTF, a voucher for £250 will be sent to the child benefit claimant (usually a parent) which can be used to open the fund. There will also be an information pack which explains how to set up the fund.

Note that the voucher cannot be used for any other purpose other than for a trust fund for your child.

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Will my Child be Charged Taxes?

A child holding a CTF will not be charged tax on the money within the fund.

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Who is Eligible for a Child Trust Fund?

All children who live in the United Kingdom, were born on or after the 1st September 2002 and if he or she has been awarded child benefit.

If your child is not eligible for a Child Trust Fund, you can still save money via other investment tools and saving funds. Speak to an independent financial adviser to discuss your options.

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Can Parents Access Money in the Fund?

No; once the trust fund is opened, the money is "locked away" until the child reaches the age of 18, at which point they can choose what to do with the money. There are no restrictions on what they can do with the money – it is theirs to with as they wish. Parents or friends can, however, contribute to the fund – up to £1,200 each year (in total).

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What Types of CTF are there?

There are three main types of CTF available:

  • Savings accounts

Savings CTFs are ideal for parents (or older children) who don"t want to invest in shares. The money held in this account types is secure and will earn some interest. This is the lowest-risk option.

The CTF provider may charge you management fees for running the fund. Find out what they are before opening the account as these vary.

  • Those that invest in Shares

These CTF accounts invest the money in shares. This means that there may be much more money in the account when the child reaches 18 – but if shares lose value, money is lost. However, as this is a long-term investment the chances of making returns are pretty good. That said this is a more risky option than the plain Savings account.

The fees on this type of account are usually calculated by taking a percentage of the account value. Find out how much a provider charges before choosing a fund – each provider varies.

  • Stakeholder accounts

This type of CTF account also invests your child"s money in shares. The money is not just invested in one company but many – this spreads risk. Once the child turns 13, the money is moved to lower risk investments and assets (such as cash). This is means the chance of there being more money once the CTF reaches maturity is better.

There is no more than 1.5 per cent charged per year on a stakeholder account. That means that no more than £1.50 for every £100 in the account.

Note that if you don"t use your voucher before it expires, HM Revenue & Customs will open this type of account for your child.

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