Child Trust Fund
The UK Child Trust Fund (CTF) scheme is not available for those born after 2 January 2011. If your child was born between 1 September 2002 and 2 January 2011 he/she may already hold or be eligible for such a fund.
If your child was born after 2 January 2011 or before 1 September 2002 you may wich to open a Junior ISA in their name, a new tax effiecient option for saving for your child. If your child was born between the dates specified above you may still be able to open a junior ISA in their name providing they do not already have a Child Trust Fund account.
How The Child Trust Fund Works
One child trust fund voucher is sent through the post from HM Revenue and Customs for each child eligible for the scheme. This may range from £50-£250 depending on when you child was born. This voucher can only be deposited into an account from a government approved CTF account provider. The account will be opened in the child's name and any money in it will belong to the child although they will not be able to withdraw any money from it until they reach 16 years of age.
Until then the account is managed by the 'registered contact' or the person who opens the initial account. It is their responsibility to notify the account provider if any circumstances change such as a change of address. Parents, guardians, relatives and friends can all deposit additional money into the account as long as this does not exceed £1,200 a year.
The CTF has the benefits of being exempt from tax and gains if profit is made. It will also not effect entitlement to benefits or tax credits of the child or his or hers family.
The Child Trust Fund Account
There are different types of child trust fund accounts available depending on how you want to invest the money. The three main ones are:
- Savings account. This works very similarly to a basic savings account available through a range of banks. The money will be earning interest for the time it is invested. One advantage that money is secure and there may be the possibility to switch banks if you choose.
- Stakeholder account. This option is slightly higher risk but there is potential for a bigger return. The money will be invested into shares and bonds of a number of different companies. When the child turns 13 it will automatically be transferred to a lower risk investment. There may be minimum charge per year for having a stakeholder child trust fund account.
- Share account. This account carries the biggest risk out of all three options but has the potential for the most return. The money invested into shares and bonds of companies but there is no automatic transferal into a lower risk investment when the child turns 13.
Child Trust Fund Rates
Each different child trust fund provider will have different terms and conditions relating to their CTF accounts and it is up to you decide which one to chose. Interest rates, account charges and financial risk will all sway your decision. If you do not deposit your child trust fund voucher, HM Revenue and Customs will do it on your behalf to their chosen account provider.
Consulting an independent financial advisor could find you and your child the best long term savings option and rate for your needs.
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