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Associate Article

General guide to CTFs – what parents need to know

From the 1st of September 2002, every child born on or after that date is entitled to a Child Trust Fund account. This is a system devised by the Government to ensure that every child has savings available to them by the time they are eighteen, and also to encourage them to practice saving and investment.

To support this, the Government has allocated an entitlement of £250 for every child with which to open this account. They will also pay a further £250 when the child reaches the age of 7 and there is current discussion regarding the possibility of a third payment when the child reaches the age of eleven. Friends and family can also make contributions to the account at a limit of £1,200 per year.

All of these payments are not liable for income or capital gains taxes and legally become the sole property of the child when he or she reaches the age of eighteen. To safeguard the child’s money, the funds cannot be withdrawn before that time.

Some parents, however, are concerned by the idea of their children having full financial control over their funds when they reach the appropriate age. There is a feeling that they may not be responsible enough to use the money wisely, choosing to spend it frivolously rather than invest it in things like university fees.

While the initial £250 is technically untouchable, other contributions can be paid into an ISA, which, if opened in the parent’s name, gives them complete control over the way in which it is spent – also allowing a greater deal of money to be saved as the limit is £7000 as opposed to the £1200 offered by the Trust Fund. For those interested in investing in an ISA Legal & General offer a broad range of options that can be found in the investments section of their site and you can download a useful guide from the HMRC website.

The type of account the Child Trust Fund is invested in, however, is very much up to the parent. The £250 voucher can be invested in one of three ways: A cash account, a stakeholder account or a non-stakeholder account.

The cash account operates in the same way as a bank or building society account, in that the money is deposited and earns interest, which is added annually.

A stakeholder account is the preferred system of the Government. Effectively, it means that the money is invested in shares. This can create substantial revenue but, with bad management and bad luck, there is always the risk that you will come out with less than you started with.

Incidentally, if the Child Trust Fund is not placed in an account within one year of its receipt, the Government will automatically invest it in a stakeholder account, on the child’s behalf.

A non-stakeholder account runs on the same principle, but the parent has greater freedom over where the money is invested as it does not all have to be put into shares, but can be invested in bonds or other financial products.

Research into the options available to a Child Trust Fund is advisable and initial options can be found at the Government’s official website.

For more info on CTFs check out the Asda Child Trust Fund section and have a look at the official government CTF website.






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