An Introduction to Child Trust Funds

A Child’s Trust Fund (CTF) is a long-term savings and investment account that is a good way to start planning for your child’s financial future.

If your child was born after 1st September 2002 then you will receive a £250 voucher from the government as soon as you begin receiving child benefit. This voucher has a real cash value, but can only be used with a CTF – it is effectively free money used to encourage the opening of such an account. There are even more benefits for this scheme to lower income families with a further £250 voucher available if your family is on full Child Tax Credit. The initial sum will be topped up with a further £250 sum when your child reaches 7 (again with an extra £250 for lower income families). Furthermore, parents, family, or friends can contribute a maximum of £1,200 a year to the account.

Funds cannot be withdrawn from the account until your child reaches the age of 18. They will take responsibility for the account at the age of 16, but will only have full access two years later. It’s a welcome present to adulthood, with the child able to spend it as they please. However, it may be worthwhile to recommend spending it on University fees, a first car, or traveling the world – things that otherwise may not be available to them at this age.

There are three types of CTF:

1. Savings Accounts: These are no risk accounts that guarantee that your child will receive at least the sum of money that has been put into the account, with some interest. However, whilst this account accumulates interests, it may not grow as much as if it was placed in shares.

2. Accounts that invest in shares: If you open one of these accounts your child’s money will be invested in company shares. Although there is some risk that the value of the shares may go down, the passed performance of shares indicates that they are a sound long term option.

3. Stakeholder Accounts: These accounts invest into a number of companies to reduce the risk of investing in shares. After your child’s 13th birthday the money will be transferred to lower risk investments, meaning your child’s savings will be very secure as they reach 18. The charge on these accounts is limited to no more than 1.5 % a year.

There is a long list of financial institutions that have been approved to provide a CTF account, with all offering a stakeholder account. For a fixed annual cost of 1.5% ASDA offer a child trust fund with no hidden charges. You can also redeem a £20 ASDA gift voucher when you open an account and set up a direct debit, making this a worthwhile choice.