Two parents in five confused by child trust funds
Thursday, 26 October 2006 12:00
Almost two parents in five (39 per cent) do not understand the difference between the different types of child trust fund on the market.
New research from Family Investments, the market leader in child trust funds, shows that the difference between cash, stakeholder, and equity child trust funds baffles many parents.
There are three sorts of child trust fund accounts:
- stakeholder accounts - these allow parents to put money in funds including shares and other investments on their child's behalf, with rules to minimise risk.
- shares accounts - these have potential for higher growth but with higher risk than stakeholder accounts.
- cash savings accounts - these offer the least growth potential but with almost no risk.
Some 75 per cent of eligible parents have now established child trust funds for their children, with 22 per cent taking the safe option of cash accounts.
But Family Investments' research shows that 59 per cent of parents who opted for a cash account did not know what sort of growth to expect.
"The natural instinct for some parents is to fear loss more than anticipate gain and as a result opt for cash," said Family Investments' chief executive John Reeve.
But this safe option might turn out to be a mistake, as inflation can eat away at the purchasing power of a cash fund.
Some 50 per cent of parents who invested in a cash child trust fund did not know if inflation would have an effect on their child's money.
"The fact is that when you lock money away in cash over 18 years, it is twice as likely that the buying power of your money will be lower [in a cash account] than if you had invested the equivalent amount [in a stakeholder account] at the outset," Mr Reeve said.
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