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The Child Trust Fund is designed to give parents a head start with their kid's savings. Only children born on or after 1 September 2002 are eligible to receive the Child Trust Fund
How does it work?
The minimum you will receive on behalf of your child is £250. But if your income is below £13,480 and you receive the full Child Tax Credit, your child will be eligible for a payment of £500. It is hoped this will encourage further savings. Once a Child Trust Fund has been opened, anyone, including aunts, uncles, grandparents, and friends, can contribute up to the maximum of £1,200 a year. The government will also make a further contribution when the child reaches the age of seven, but hasn't confirmed how much this will be.
Investing in the Child Trust Fund
You can choose either to invest the money in a ‘stakeholder' account or a ‘non-stakeholder' account. Stakeholder accounts invest in stocks and shares in the first few years and then move into less risky investments, such as cash and bonds, as your child nears the age of 18. Charges are capped at 1.5 per cent. Non-stakeholder accounts offer a wider range of investment options, including straightforward savings accounts where your capital is 100 per cent secure, as well as stocks and shares accounts, but management charges won't be capped at 1.5 per cent.
Anna Bowes, of independent financial adviser Chase de Vere Financial Solutions says: "As you are investing over a long-term period, my view is that a stocks and shares account is a better place to put your money as there is potential for much higher growth."
Where can I get a Child Trust Fund?
A wide range of financial institutions offer Child Trust Funds and the Inland Revenue will send a full list of all providers before you receive your child's voucher. After you receive it, you have a year to pay the money into a Child Trust Fund account. If you don't, the government will open a stakeholder account for you. So start now and get your kids savings-mad.
