Child trust funds
Written by: Catherine Stern
If your child was born between 1st September 2002 and 2nd January 2011 then they should have a Child Trust Fund (CTF) account in their name. These were initially designed to encourage parents and other family members to save for the child’s future. With the introduction of Junior ISAs for children born after this point, you might be confused as to what options are available to you.
What is a CTF?
Children who were eligible and born during the qualifying period were issued with a voucher worth up to £250, which their parents or guardians could invest in a CTF account. All children who lived in the UK and whose parents received child benefit and were not under any immigration controls were eligible to open an account. Only providers that have been approved by the Government can operate CTFs and they have to follow a strict set of regulations about how the money is invested.
The accounts are tax free and the amount can be added to either as a lump sum or with regular savings. The account is in the child’s name and they are the only person who can take the money out. From the age of 16, they can make decisions about how their money is invested. Once they reach the age of 18 they can choose to withdraw the money and use it as they wish.
There are three different types of CTF accounts. With a stakeholder account the money is invested in a range of companies to help minimise the risk of one suffering large losses. The risks taken are based on the age of the child and will be lower after they reach 13. A share based CTF invests the money in specific companies, so is a higher risk option. However, shares are usually worth more in the long term. A savings CTF is the lowest risk choice and is the same concept as a bank savings account.
Can I switch CTF accounts?
Even though CTF providers are no longer accepting new customers, those who already have an account can move between them or change to a different type: for example from a share to a savings account. Since the introduction of Junior ISAs, providers have been less concerned with CTFs. This means that you could be earning a much lower rate of return on your account than you initially were. It might be worthwhile to see what other accounts are available, as you could benefit from a higher rate.
From April 2015 you will also be able to move money within a CTF to a Junior ISA. Currently the gaps between the best performing products in each sector don’t differ that widely. However, as this date gets closer, providers might try to entice new customers by offering higher rates on their Junior ISAs.
How do I switch accounts?
You can easily transfer your money to a different CTF. Once you have found a new provider, simply contact them and they will deal with the transfer. There are no penalties when you switch, but some share accounts might incur costs to move. When you’re moving you need to transfer the full amount.
With more than six million CTF accounts in operation, it could be beneficial for your child’s future to see if there is a better option available. With the chance to move to a Junior ISA next year it could open up even more choices for you and your child.
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