About the Child Trust Fund

What is the Child Trust Fund?

Children living in the UK for whom Child Benefit is being received and who were born on or after 1 September 2002 are entitled to a Child Trust Fund account. You don't need to make a claim to get the account started, the Government will send you a voucher for £50 automatically. The account can give your child a head start as a young adult. It will help your child understand personal finance and the importance of saving for their future. The account belongs to them and when they turn 18, the money is theirs to use as they think best.

What will my child get?

Eligible children born on or after 6 April 2005 will receive their £50 voucher shortly after Child Benefit has been claimed and starts being paid.As well as the Child Trust Fund (CTF) voucher, children in families with lower incomes will get an additional payment from the Government.If your child was born on or after 1 September 2002 and you have claimed Child Benefit for that child, you should have already received your child's voucher. If not you should call the CTF Helpline. Is there a second payment at the age of 7? All eligible children born on or after 1 September 2002 will receive a further payment from the Government of £250 into their Child Trust Fund (CTF) accounts at age 7. Children in families who qualify for full Child Tax Credit (CTC) with an income below the CTC threshold on the child's 7th birthday will qualify for an additional £250.These payments will be made direct into the child's CTF account.To qualify the child must be:- in receipt of Child Benefit have a CTF account and be living in the UK on their 7th birthday.

Can a parent add money to the Child Trust Fund?

Yes you can, The maximum amount that can be put into the account each year is £1200. The start date for each year is your child’s birthday, except in the first year when the start date is the day the account is opened and the end date is the day before your child’s next birthday. If the full £1,200 limit is not used in one year, the unused amount can't be carried forward to the following year. For example, if you contribute £900 to the account in one year, you can't add £1,500 the next year to make up the shortfall. Take note these monies can not be withdrawn once added so read note below.

Can funds be withdrawn fron the "Child trust Fund" before the age of 18?

NO If you do decide to add to a child's Child Trust Fund (CTF) account it is important to remember that any money in it is locked away until the child is 18, and that it will be up to the child to decide how to use the money once they turn 18. Before you save any money, you should think about any debts you have and money for emergencies. If you have any debts that are stretching your budget, for instance if you've borrowed money to buy something and you are now making repayments, it would usually be better to pay that money first before thinking about saving. If you don't have any money put aside for emergencies, it would be better to save some money where you can get at it quickly, or get some insurance, before you think about saving.

What type of accounts can i invest in for my child?

There are three types of account to choose from, depending on how you feel about taking a risk in order to give the money a better chance to grow.You may want to put your child's money in a very safe account where there will not be a risk, but the return on the money might not be so high. On the other hand you might be willing to take a risk to try and get a higher return.Don't forget, however you choose to use the voucher now, you can move to another type of Child Trust Fund account or provider at any time. The First type is a Savings Account If you don’t want to invest in shares, you could choose a savings account for your child’s Child Trust Fund account. With a savings account any money you invest is secure. For example if you invest £500, your child will get that sum of money back as well as earning some interest.But you should consider that although your money earns interest, it might not grow as much as it would if it was invested in shares. Savings accounts do not usually perform as well as money invested in shares over the long term, especially when inflation is taken into account. The effect of inflation means that money in the account could lose value over the long term. This is because prices usually rise each year and so £20 won’t buy you as much today as it did ten years ago. As with all accounts your provider will charge you for the cost of running it. You might not notice this cost as it will not appear on your statement, but providers cover these costs when deciding how much interest to pay on savings. This is something you should check before deciding to open an account. The second is accounts that invest in Shares These accounts invest your child’s money by buying shares in companies. When those companies do well and the shares go up in value, they make money.This type of account has the potential to do well when money is invested for a long time. This is because poor performance of shares in some years can be made up for by good performance in others, and over a long time period the stock market’s value tends to rise more than it falls. Investing in shares is more risky than putting money in a savings account as shares can lose value if companies are not performing well. But in the past an amount of money left for a long time in this type of account has grown more than the same amount left in a savings account. This is true for every 18-year period in the last 40 years. Nobody can promise that shares will continue to be the best long-term investment but in the past this has usually been the case. However, you must remember that shares can go down as well as up and past performance is not a guarantee of how shares will perform in the future. The charge on this type of account is usually a percentage of its value. You should check how much this would be with your chosen provider. The third is a Stakeholder Account Stakeholder accounts invest your child’s money in shares in companies. The Government has made certain rules for these accounts to reduce the risk of investing in shares. Your child’s money is not invested in just one company, as they could lose out if that company does badly. Instead, it is invested in a number of companies in order to reduce the risk. Once your child is 13, money in the account starts to be moved to lower risk investments or assets, such as cash. Providers will consider how well shares are performing to decide how much to move over into safer assets and how quickly. This means that although your child’s money may not benefit if the stock market is performing well, it is protected from stock market losses as they approach their 18th birthday. Once the account is open, all providers must accept minimum contributions of £10 into a stakeholder account, but they can accept less if they wish. The charge on the stakeholder account is limited to no more than 1.5 per cent a year. This means the charge can be no more than £1.50 for every £100 in the account. The charges on all other types of Child Trust Fund account are not limited in this way. The stakeholder account is the one HM Revenue & Customs will open if you don’t use the voucher before it expires.