Child Trust Funds (CTFs) were once a popular way to save for children. They were introduced in April 2005 to encourage long-term saving and give all children a financial boost by the time they reached 18.
The government sent vouchers to parents of between £250 and £500 to give accounts a head start, and family and friends could top up the account if they wished. Many vouchers went unspent and in these cases accounts were opened by the government on parents’ behalf.
In other cases the accounts were topped up frequently, with parents and others adding money up to the limit each year. The annual contribution limit has risen over the years and is now £4,260, the same as Junior ISAs – a child cannot have both types of account.
There were three options available:
Cash: Similar to a Cash Isa, with interest earned on savings paid tax-free.
Stakeholder: Specific stock market funds with charges are capped at 1.5% a year and invested in a mix of investments.
Shares based: A choice of your own investments.
New CTFs were discontinued in January 2011, replaced by Junior ISAs.
Who was eligible?
Child Trust Funds were available to children born between 1 September 2002 and 2 January 2011. The Government initially offered families a £250 voucher when their child was born and another £250 upon reaching the age of seven. Children from lower-income backgrounds were given £1,000 in total.
Before it was scrapped, the scheme was scaled back heavily. Children born between August 2010 and January 2011 received only a £50 voucher or £100 if from a lower-income family. Payments to children aged seven also stopped in August 2010.
Most of the ‘free’ money in CTFs will therefore be just £250 per account, plus interest or investment returns. But children born between 1 September 2002 and 31 July 2003 into low-income families could have a fund worth at least £1,000. If this was invested in stocks and shares it would likely have risen quite significantly by now and represent a decent-sized nest egg.
How do I find out if my child had a Child Trust Fund?
You should have some paperwork from your provider. However, if this has been lost, the easiest way to track it down is to visit HMRC's website and fill out a form. You will need a ‘government gateway’ ID. HMRC should get back to you within 15 days of your application.
What to do with Child Trust Funds
On 6 April 2015, the government made it possible for people with CTFs to transfer to more flexible Junior ISAs.
There are a number of reasons why it may be a good idea to switch:
- There are more Junior ISA options in the market to choose from
- For those wanting cash accounts interest rates are generally higher in Junior Cash ISAs
- Some Child Trust Funds don't accept new investments
- For stock market investments Junior Stocks and Shares ISAs are often significantly cheaper than CTF counterparts
- Junior Stocks and Shares ISAs have a much wider choice of investments
Before transferring to a Junior ISA, it's important to check the value and if there are any exit fees or guarantees that might be lost if you switch away. Once you have done that you will need to choose a new Junior ISA provider.
Full details of the Charles Stanley Direct Junior Stocks & Shares ISA, including charges, can be found here.
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