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Child Trust Funds - Accounts & Vouchers

about Child Trust Fund's (CTF)

what is a Child Trust Fund (CTF)?

A Child Trust Fund (CTF) is a child savings and investment account developed by the Government to encourage children and their families to save for the future.

the Government Child Trust Fund scheme

The Government Child Trust Fund voucher scheme was introduced with the aim of ensuring that all children have a financial head start when they reach adulthood.

Every child born on or after the 1st September 2002 receives a £250 Child Trust Fund voucher from the Government. This amount rises to £500 for children from families who receive full child tax credit. On the child's 7th birthday, the Government will make a further payment into your child's Child Trust Fund (CTF) of £250. Again, for families in receipt of full Child Tax Credit this will be £500. This is the current proposal and may change in the future.

There is no need to apply for the Child Trust Fund voucher - entitlement for the CTF is linked directly to your child's entitlement to child benefit.

Choosing a Provider

The Government will give you a year to invest your Child Trust Fund voucher. If you don't choose a provider within this time, then the government will automatically invest the voucher for you. Of course, you'll still be able to transfer to the provider of your choice, but the sooner you open the account, the sooner the money can be invested.

Child Trust Fund accounts - the options

There are two types of Child Trust Fund account - a Stakeholder Child Trust Fund & a Non-Stakeholder CTF. Before investing a Child Trust Fund voucher it might help to think about your approach to risk and return.

The Government Child Trust Fund rules have set out certain standards relating to Stakeholder Child Trust Fund (see key points of stakeholder accounts and non-stakeholder CTF accounts below). Non-stakeholder Child Trust Fund accounts are not required to meet these standards.

Whichever type of account is chosen, on their 18th birthday the child will have access to it, providing them with a tax free lump sum to either invest or simply spend as they wish.

Stakeholder accounts

Stakeholder accounts invest your child’s money in shares in companies. This is the type of CTF account that engage offers.

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.

Please see the table below for a brief summary of stakeholder v non-stakeholder accounts Child Trust Fund accounts.

Key points of stakeholder & non-stakeholder

Before opening a Child Trust Fund account you may want to compare the key points of each. These are as follows:

Feature	Stakeholder CTF Account	Non stakeholder CTF Account
Annual Management Charge	Maximum 1.5%	Charges are not capped and may have an annual management charge of more than 1.5%
Minimum payment	Must accept payments as little as £10	Can set the minimum payment higher than £10
Investment type	Must invest in a fund that invests in the shares of a spread of companies to help spread any risk	Doesn't have to invest in a spread of companies - can invest solely in one company. Can be deposit based
Payments in	By cheque, Direct Debit, standing order and direct credit	Can restrict the methods of paying in
Lifestyling	Yes	No

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. 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.

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.

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.

Savings / Deposit accounts

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 will earn a rate of interest. 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 the 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, however, they are more secure.

Which ever type of account is chosen on their 18th birthday the child will have access to the account, providing them with a tax free lump sum to either invest or simply spend as they wish.

Additional Contributions

Making contributions to a child’s Child Trust Fund (CTF) account is your choice. The Child Trust Fund account offers parents, family and friends the chance to save up to £1,200 a year between them. This is in addition to the contributions made by the Government. Every contribution, no matter how small, will make a difference in the long run. Neither parents nor the child will pay tax on income or gains in the account. Any references to taxation are based on our understanding of HM Revenue and Customs practice, which is subject to change.