10 Things To Know About Child Trust Funds

Don't leave your child's £250 languishing in a drawer; find out what to do with it, here.

If you have a child born after 1 September 2002, you'll no doubt have received one of the government's Child Trust Fund (CTF) vouchers. Worth £250 (£500 for lower income families) the voucher is sent out to all new babies in the UK. What's more, the children will receive another voucher for the same sum once they turn seven, and the government is consulting on additional payments when the children reach secondary school.

The vouchers must be used to open a Child Trust Fund account, of which there are three different types to choose from: a simple cash savings account, a stakeholder equity account (allowing your child to invest in a number of funds with charges capped at 1.5%) and a non-stakeholder equity account.

The aim of the account is to help parents to save for their child's future and promote financial education and a savings culture amongst young people. In fact, Economic Secretary Ed Balls has mentioned that he would like schools to use the accounts to teach children about money and savings.

A report released by the Treasury yesterday revealed that almost 2.5million CTF accounts have been opened so far, with the encouraging news that three quarters were opened by the parents themselves. However, this does mean that one in four parents is failing to use their child's voucher, so not only will their child have no choice in where their money goes, they'll lose 12 month's interest, too.

So to help simplify matters a bit, here are ten simple things to know about the Child Trust Fund:

Child Trust Funds are like ISAs for children -- they are a government backed, tax free saving scheme.
Parents only receive their child's CTF voucher once he or she has been registered for Child Benefit. And to do this, they need to have their birth certificate. Remember, Child Benefit is available to every child, regardless of parental income.
Once you have the voucher, time is money. The sooner you start to look into the types of CTF account available, the sooner you can open one. So get reading.
You can find full details about the scheme at the government's Child Trust Fund site, and right here, at The Fool.
Children gain full access to their CTF when they turn 18.
The pre-budget report indicated that you'll be able to roll a CTF into an ISA, once it matures, meaning that your child's money could benefit from the tax free status for many years.
You can transfer a Child Trust Fund to another provider at any time, free of charge.
If you don't invest the voucher within 12 months, the government will open a stakeholder account for you.
Parents, friends and relatives can top up a Child Trust Fund by a maximum of £1,200 per year (£100 per month).
If your oldest child is eligible for a CTF, and you were to pay just his/her Child Benefit into the account, it would equal a contribution of around £907 to the account per year, or £75 per month. Subsequent children could contribute £608, or around £50 per month.

Another important point to remember is that money invested in a CTF is not subject to the £100 rule. Normally, if a child earns any interest over this sum on money given to him or her by a parent, the parent is taxed on it at their highest rate. This does not apply to the CTF, meaning that your child could save the maximum £1,200 per year, whilst saving elsewhere, too.

Best Buy Cash Child Trust Funds

Top cash CTF accounts of the moment, according to Moneyfacts, include Yorkshire BS, paying 6.55%AER (including a 0.7% bonus for 12 months), and Britannia BS, paying 6.5%AER (including a 1.25% bonus for 24 months). Both accounts can be operated in branch or by post. And you can find a comparison table listing the stakeholder and non-stakeholder funds (and their charges!) courtesy of Moneyfacts, here.

Of course, if you're a new parent one of the last things you'll probably feel like doing is researching Child Trust Funds. But even if you think it'll be months before you'll get round to it, don't let your child miss out on the interest that £250 could be earning. Open up a simple cash based account with the voucher now and you can transfer it to the account of your choice in the future.

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