The Child Trust Fund (CTF) is a savings account for children. The account, set up on their behalf, is owned by the child and cannot be touched until the child is 18 years of age. This can give children a valuable kick-start to their adult life. Having some money behind you when you are 18 can be a valuable asset, ensuring the child has the best possible chance to succeed in their chosen path.
The Child Trust Fund has other benefits which can help educate them for what lies ahead. For instance showing your child that they have this money saved can teach your child the value of savings and help form a habit of saving money, as well as providing them with an introduction to personal finance. This doesn't necessarily have to be the person who receives the voucher; however it does have to be a person with parental responsibility. Parental responsibility can apply to parents, step-parents, adoptive parents and guardians.
CTF will send a Child Trust Fund Voucher to those who are receiving Child Benefits. The person who opens the account on behalf of the child will be responsible for managing the account until the child is 16.
A child is Eligible for CTF if:
- Your child was born on or after September 1st 2002
- Your child lives in the UK
- You receive benefits for your child
- Your child is not subject to immigration control
Children of Crown Servants (those working on behalf of the British Government) and Armed Forces posted overseas qualify because they are treated as being in the UK.
- CTF is a long-term savings account. The child (and no one else) is able to withdraw the money when they turn 18.
- CTF is tax free – Neither you or your child will pay tax on income or gains in the account.
- £250 starting voucher
- Children in families receiving Child Tax Credit (CTC), with a household income less than £14,155 for 2006/07will receive an extra payment
- A maximum of £1,200 a year can be saved in the account
- Money cannot be withdrawn from the Child Trust Fund once it has been put in – when your child reaches 18 they will be able to decide how to best use their money
- The Government will make a further contribution when your child is seven – again families on lower incomes will receive an extra payment.
- You are free to move the account to a different provider or change the type of account at any time. Once the child is 16 the child can then make these types of decisions about their account.
Types of Account:There are several different types of account. The three main types of account are:
- Savings Accounts – If you don't want to invest your money into shares you can choose to have it placed into a savings account. Savings accounts can provide extra piece of many leaving you safe in the knowledge that the money remains secure. You will earn interest on the savings but it may not grow as much as it would if you had invested it in shares. As with all accounts your provider will charge you for the cost of running it. Providers generally cover these costs when deciding how much interest to pay on savings. This is something you should check before deciding to open an account.
- Accounts that invest in shares – These types of account 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. Charges on this type of account are usually a percentage of its value. You should check how much this would be with your chosen provider.
- Stakeholder accounts – 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 a single company. Instead, it is invested in a number of companies in order to reduce the risk. The charge on the stakeholder account is limited to no more than 1.5% a year.
Click here for more information about child trust funds and to apply for an account.