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Child Trust Fund

Child trust funds



When your child is born, you’ll receive a free Government voucher worth £250 (or more, depending on circumstances) to invest in a Child Trust Fund (CTF). This scheme is the Government’s way of ensuring that every child has some savings behind them for their future. You simply need to choose which type of account you’d like to invest it in and contact a provider from the list that you’ll receive with your voucher.

If you don’t choose an account to invest this money in the Government will do it for you, allocating the voucher to a CTF provider at random. This will happen just after your child’s first birthday. Once this has happened you can still transfer the fund to a provider you choose. If you’d like a timely reminder - including one all about Child Trust Funds - just sign up for our Little Bird updates, they’ll help make sure you don’t miss this or any other important dates.

When your child reaches seven years old a further £250 (or more, depending on circumstances) will be paid into the account by the government. In the case of both the initial and seven-year payment you may qualify for an additional initial payment of £250 if your family is on a low income.

Your child is the only person who can draw out this money and they must have reached their 18th birthday to be able to do so. What’s more, you can give their savings a boost by topping up their account by up to £1,200 a year with regular or one-off payments.

Types of CTF accounts

You’ll find there are different types of accounts to choose from. Providers offer different rates and fees as well as often having a minimum top up amount into the Child Trust Funds so check these things out if you’re planning on putting more money into one. As always, it’s best to seek advice from an independent financial advisor when planning to invest money.

Stakeholder accounts

This type of account invests your child’s money in stocks and shares in companies, it’s also the one that the Government puts your money into if you don’t invest it yourself although this doesn’t mean they’re suitable for everyone or the performance is guaranteed. The regulation of these accounts ensures that the money is spread over many companies so there is less impact if one company doesn’t perform well. And when your child is 13 years old, the money will start to be moved into lower risk investments such as bonds or cash.

Remember, investing in shares is more risky because returns are not guaranteed, the value of the companies invested in can go up as well as down which means that your child could get back less than has been invested.

With stakeholder accounts, the provider has to accept a minimum top-up of £10 (this doesn’t have to be a regular payment), but some may accept less. They also have capped annual management charges and legally, these must be no more than 1.5% a year – the equivalent of £1.50 on every £100 invested. This is the type of account offered by Family Investments. Find out more about the Family Investments Child Trust Fund.

Cash Accounts

If you don’t want to invest in shares you could choose a savings account. These are similar to a normal bank or building society account in many ways except that your child won’t be able to access their money until their 18th birthday. The savings are protected in the same way as normal bank deposits and there are no fees although the provider costs would probably be accounted for in the interest rate they offer.

It is however important to remember that the effects of inflation can reduce the ‘real’ returns that your child will get. Ensure if you can that the account you choose provides an interest rate higher than the rate of inflation – then the savings should grow at a faster rate than money loses value over time.

Share Accounts

These accounts buy shares and other investments with your child’s money and can be a more specialist type of fund. You may be able to exert more control over the shares or types of investments being chosen. Therefore there aren’t the same restrictions on the type of investments for these accounts from the government. While they could offer higher returns they can also be more risky so as per the stakeholder accounts you could end up with less than you put in. Charges and minimum contributions for these types of accounts will also vary.

Investing ethically

With both Stakeholder and Share accounts it’s possible to invest your child’s money into accounts that have ethical, social and environmental policies. For example, these accounts will avoid investing in arms, tobacco or alcohol companies. On the other hand, these accounts might invest in companies that like to sell goods according to fair trade rules or those that work to protect the environment.