If you can't bear to invest your child's trust fund voucher in the stock market, which cash accounts offer the best value?
Anyone who's had a baby in the last four years will have been entitled to the government's £250 lump sum (more for families on low incomes) to invest in a Child Trust Fund. Although the money can't be touched until the child reaches 18 years of age, it's free from income and capital gains tax.
The question is where to invest it. There are three types of Child Trust Fund: a cash savings account, a stakeholder account where the money will be invested in shares and then gradually shifted into less risky investments after the child's 13th birthday (known as 'lifestyling'), and a non-stakeholder account for the more adventurous parents who want to choose where to invest the money.
Out of all of them, I generally prefer the stakeholder accounts because the charges are capped by the government at 1.5%, transfers between accounts are penalty-free and the 'lifestyling' aspect helps to ensure protection from a falling stock market just as the child becomes entitled to collect his investment at the age of 18.
However, although the returns on cash just aren't as good as those from the stock market, many parents have felt more comfortable with the concept of a simple savings account. If you're one of them, then here are the best ones available at the moment:
Company | AER | Min Inv | Min | Int |
|---|---|---|---|---|
| Yorkshire BS | 6.25% | £250 | None | Yly |
Britannia BS | 6.25% | £250 | £1 | Yly |
| Chorley & District BS | 5.50% | £250 | None | Yly |
| Skipton BS | 5.30% | £250 | £10 | Yly |
| Ipswich BS | 5.25% | £250 | £1 | Yly |
| Furness BS | 5.25% | £250 | None | Yly |
Remember that over the 18 year period of investment, any growth in the savings account is likely to be eroded by inflation, so unless you're really stuck on the idea of keeping your child's money in cash, consider one of the many equity-based stakeholder accounts available. It'll make more money for your child than they'll get from a savings account - especially if you top it up by the permitted maximum of £1,200 each year.
Find out more about Child Trust Funds and compare savings accounts.