If you don't know what to do with a Child Trust Voucher, here are some comparison tables to help!
If you've recently had a baby, you should have a received a Child Trust Fund (CTF) voucher. Indeed, anyone with a child born after 31 August 2002 should have had one sent to them. Worth £250 (£500 for low income families) this voucher must be saved into a designated Child Trust Fund account in your child's name, with the aim of helping create a lump sum for your child when he or she turns 18.
The problem is, while most people have heard of the CTF, and know that they need to stash that voucher into an account, deciding where to put it is an entirely different matter. Indeed, having a baby daughter eligible for a CTF voucher myself, I found myself considering where the best place to invest it would be.
Types of CTF
There are essentially three choices. First is the cash based account - a tax-free savings account that your child can't access until he's 18. While the risk is low and there are no associated charges, cash based accounts are unlikely to grow massively.
Second is the Government's choice - the Stakeholder account. This allows your child to invest in a number of shares (often through a simple index tracker) but charges must be no more than 1.5%. This option therefore allows your child's money to be exposed to the stock market, and when he turns 13 his account will be moved to less risky investments, to try and lock in any growth. Whilst any stock market investment is riskier than saving money as cash, the potential for growth is far greater. And if you don't open an account within 12 months of receiving the voucher, the Government will open a stakeholder account for you.
And finally, the third option is to invest in an Equity or shares CTF, which allows you to buy shares or funds for your child. As this isn't a stakeholder product, charges are not capped and it is obviously potentially quite high risk. But if you're a keen investor, this does mean you have control and could theoretically make your child a lot of money.
Depending on your level of risk you'll probably have an idea which option to choose - and it's worth remembering that you can transfer your child's money to a different CTF account at any time. Unfortunately, even when you've made this initial decision, you may still find it tricky to decide which provider to use.
Accounts available
You can find the official list of CTF providers on the Child Trust Fund website. However, while it shows the types of CTF available from each provider (note, all providers must offer a stakeholder option) it doesn't give any information regarding charges etc. But don't worry; we've done some research for you! Here are the current, best buy cash CTFs:
Best Cash Child Trust Fund Accounts
Provider | Rate/AER | Min. addition |
|---|---|---|
Yorkshire BS | 6.25% | None |
Britannia BS | 6.25% | £1 |
Skipton BS | 5.55% | £10 |
Chorley & District BS | 5.5% | None |
Ipswich BS | 5.4% | £1 |
Furness BS | 5.25% | None |
Source: Moneyfacts
Note: All of these accounts need to be opened with your child's £250 CTF voucher. They all allow transfers into the account, and have no penalties for transfers out.
So you can see that by stashing that voucher away as cash, your child can currently earn a maximum of 6.25%AER, each year.
Stakeholder and Equity Child Trust Fund Accounts
And if you're keen on either the Stakeholder or shares CTF, you can find a comparison table listing funds, and most importantly their charges, courtesy of Moneyfacts, here.
Of course, choosing the right account is tricky - and pressure is increased by the knowledge that your choice could dictate whether your child makes money, or loses a potential fortune! The best thing to do is assess your attitude to risk, and choose the one you're most comfortable with. It's worth remembering, however, that this money is going to be tied up for a long time - and the CTF website itself states that over periods of 18 years, shares have historically outperformed cash well over 90% of the time. Unless you're very averse to risk, it's probably best not to choose a cash based account.
My husband and I deliberated long and hard over our daughter's CTF; finally plumping for a simple, low cost (stakeholder) UK tracker. Although we might possibly make more money by choosing a shares based account, we know that this will take up time on our part that we can't guarantee we'll be able to find.
Trackers are a great option for people like us as they require minimal attention and with low charges, less of your profit is lost. What's more, as eight out of ten managed funds have failed to beat the index in the past, trackers can often prove a highly profitable option! However, one point that we did find annoying was the fact that although stakeholder charges have been stipulated to be "no more than" 1.5%, most providers have simply made this their charge - irritating when you consider there are index trackers out there with charges of less than half this amount.
Hopefully, by using the comparison tables given in this article you'll get a good idea of which provider to use for your child's CTF. But even if you don't think you'll have the time to make that decision straight away, the important thing is to do something with that voucher when you receive it. Every day that it remains a piece of paper is a day it isn't earning money. So even if you initially open a cash based account with the intention of switching in a month's time your voucher will still make some interest, however little.
Find out more about CTFs in our Saving For Children centre.