The Working Families Guide to the Child Trust Fund

Introduction

The Child Trust Fund, or CTF, is a long term savings product designed by the government. It aims to ensure that children have a tax-free lump sum locked away until their 18 th birthday, at which point the money is theirs to spend as they wish. The state has pledged to kick-start each fund with at least £250. More government money is promised, parents and relatives can add extra money every year and there’s no tax to pay on any of it. Because of this concession, the CTF scheme is run by HM Revenue & Customs.

Parents and guardians of eligible children each receive a voucher which must be used to open an account. But there are three different types of Child Trust Fund accounts on offer from more than 40 companies and the choice can seem bewildering.

This guide will explain how the Child Trust Fund works in practice, and help you understand the choice facing parents.

You can work though all of the guide in order, or, you can jump to the different sections by clicking on the links below.

The basic rules - how does it work?

What choice do parents have?

What is a Cash Child Trust Fund?

What is a “Stakeholder” Child Trust Fund?

What is a Shares Child Trust Fund?

Where can I get more help?

What happens next?

How will my child get the money?

The basic rules - how does it work?

Who Qualifies?

All children born in the UK after 1 September 2002 who receive Child Benefit will automatically be eligible as long as they’re not subject to any immigration restrictions. Parents don’t have to make a separate claim or fill in any other forms. Information packs and vouchers will be sent out shortly after the first Child Benefit payment is made.

Twins and triplets will each have their own CTF account so parents will be sent a separate voucher for each child.

There are special arrangements for foster children and those in care to make sure they do not miss out.

How much money will my child get?

All eligible children will be sent a voucher for £250 at birth.

The government has decided that families on lower incomes will get an additional payment of £250 as well. They will qualify for the extra amount if they receive Child Tax Credit (CTC) and their household income is not more than the CTC threshold for the tax year 2006/07 which is £14,155 (£14,495 or less in 2007-8).

This further payment will be made directly into the child’s CTF account, but this cannot be done until the family’s Child Tax Credit claim has been finalised for the year of the child’s birth. Once HM Revenue & Customs has details of the family’s actual income for the year it can confirm the award and therefore the entitlement to the second payment - at which point the money will be transferred into the account. HMRC will write to parents to confirm when this has been done.

What do I do with the voucher I get?

The voucher can only be used to open a Child Trust Fund account - and you cannot open a CTF account - without one. Once you have decided which account you want, ask the provider for an application form and send it back along with the voucher.

Some companies will let you open accounts over the telephone or online although you will still need to send them your voucher. You may also be asked for proof of your identity or address.

You can only use the voucher once to open one account - you cannot split it between different types of accounts or different providers.

Click here to go straight to What Choice Do Parents Have?

Can I change my mind?

You can move the money to a different account whenever, and however often, you want. You won’t be charged a penalty to make the transfer, but if you have an account which invests in shares, then the provider can pass on to you costs such as dealing charges and stamp duty incurred by closing your account. That means that if you are finding it difficult to decide which CTF account to choose, or you know you simply don’t have time to think about it for a few months, it might be worth opening a cash account in the interim. At least that way the money will be earning interest whilst you consider your alternatives.

What if I do nothing?

Parents have twelve months to decide where they want to invest their child’s voucher. If at the end of that time they have still not chosen a CTF account , then the HM Revenue & Customs will automatically open a stakeholder account for the child, and send the details to the parents. But they can then move the money into a different CTF account if they wish.

What if I lose my voucher?

You can get a free replacement voucher by calling the Child Trust Fund helpline on 0845 302 1470 or via the Child Trust Fund website 

Will the money affect my benefits or those I get for my child?

No. The money in a CTF account will not affect any benefits which the child’s parents may get. But any money in a CTF account on the child’s 18th birthday, may affect any benefits they claim.

What about tax?

There is no tax to pay on any interest or gains made in a CTF account.

Will the government add more money to it?

The government has promised to make another payment on the child’s 7 th birthday. The money will be transferred directly into each child’s account. As with the initial payment all children will get £250, with families on lower incomes getting an additional £250 on top.

The government is also considering making a third payment at secondary school age, but no decision has been made about whether this will happen, how much it would be or when it would be paid.

Can I add money to the fund?

Parents, friends and family can add up to a maximum of £1,200 per year to an account. The year starts on the child’s birthday (apart from the scheme's first year, when it starts on the day the account is opened, and runs to the day before their next birthday).

The £1,200 allowance is not transferable - so if you only pay in £1,000 in one year, you can’t add £1,400 in the following year.

Who does the money belong to?

From the moment the account is opened, the money belongs to the child. But for obvious reasons, their CTF account will be managed on their behalf by whoever has parental responsibility until their 16 th birthday. At this point the child gains control of the account and becomes responsible for any investment decisions.

The whole idea is to encourage long-term savings, and therefore the rules do not permit access to any money in a CTF account before the child’s 18 th birthday. At that point, they can do what they want with the money - there are no restrictions on how the money is to be spent.

It will be possible to reinvest the proceeds of a Child Trust Fund into an Individual Savings Account or ISA. This will allow the money to continue to grow tax-free.

It is possible to release the money early for terminally ill children. If a child dies before their 18 th birthday, the money will go to whoever inherits their estate (any assets belonging to the child). This is usually the child’s parents – or the husband or wife if the young person was married.

Can I open a Child Trust Fund account for children born before 1 September 2002?

No. Children born before 1 September 2002 cannot have a CTF account, even if parents are prepared to make the initial contribution themselves.

However, there is an enormous range of savings accounts and investments available on the open market, and almost all of these can be opened on behalf of a child. Parents should, however, be aware that non-CTF accounts do not enjoy the same tax privileges as CTF accounts although children do have a personal tax allowance of £ 5,035 (2006/2007)..

WHAT CHOICE do parents have?

Many parents are surprised to discover that although the state provides the money for the CTF it does not actually open an account on behalf of the child. In fact it’s up to parents to choose an account.

It is not a straightforward decision and many parents struggle to make sense of their options. When deciding what to do, you should consider a number of factors, including whether your child already has any savings, whether you are likely to be able to add to the government’s contributions, how experienced an investor you are, and your own attitude to risk.

There are three different types of Child Trust Fund accounts available - the cash CTF account, the “stakeholder” CTF account and the shares CTF account . Both “stakeholder” and shares CTF accounts are linked to the stock market.

If you don’t use your voucher before it expires the government will open a “stakeholder” on behalf of your child. But that does not mean that it is necessarily right for you.

The second choice facing parents is between the various companies which provide the three kinds of account. Providers include banks, building societies, credit unions, friendly societies, stockbrokers and fund management companies. Every provider has to offer the “stakeholder” account - with some also offering the cash or shares CTF accounts as well.

One of the difficulties facing parents is that no two stakeholder, cash or shares CTF accounts are the same. Each provider’s product is different. So as well as selecting which type of account you want, you also need to consider a range of different options within your chosen category.

You can find a list of all the providers on the Child Trust Fund website

In addition there are a number of companies known as “distributors” which offer other companies’ Child Trust Funds. These include high street retailers and other financial companies.

For instance the Post Office, The Early Learning Centre, Sainsburys and Barclays Bank all offer CTF accounts provided by Family Investments. In contrast Asda, Debenhams and Legal and General all offer the CTF account run by another company called engage Mutual Assurance.

Many distributors offer free gifts like shopping vouchers to encourage people to open their child's CTF account. But it is more important to make sure you are happy with the company that will actually be looking after your money. Make sure you understand who that is and how it will manage your child’s investment.

The Child Trust Fund website also has a list of all current distributors

Let’s take a look at the different types of account in detail.

If you are worried about investing in shares, and don’t think you would be comfortable taking any risk with the money, you should start with WHAT IS A Cash Child Trust Fund?

If you are prepared to take some risk with the money, then you should consider WHAT IS A “Stakeholder” Child Trust Fund?

If you are an experienced investor and are prepared to take a more active role in deciding how best to invest your child’s money, you may wish to consider WHAT IS A Shares Child Trust Fund?

What is a Cash Child Trust Fund?

How does it work?

The cash CTF is the simplest and most straightforward option. It’s just like a bank or building society account. The money you put in the account earns interest which is added to the total each year on the child’s birthday. The rate of interest paid is variable - that is, it can and will change in line with the Bank of England’s “base” rate and the economy in general and will depend on the provider.

There are around a dozen or so cash accounts available, mainly from building societies. Although they all work in a similar way, they are not all the same. Some accounts pay a flat rate of interest to all customers, while others offer a higher rate if you pay in extra money, or open the account before a certain date.

As with adult savings accounts, watch out for hidden catches. Some interest rates include short term bonuses which, when they run out, reveal a rather less impressive interest rate. On the plus side, some accounts include a guarantee that the rate will not fall below the base rate for a set period.

Most cash accounts will accept additional payments from as little as £1 but a few insist on a minimum deposit of £10. If it matters to you, check whether you can pay money in via direct debit, on the internet or over the telephone.

Is the money safe?

Yes. Despite the fact that the interest rate can fall, the money you’ve paid in - your capital - is completely safe. It cannot shrink. That means most people would describe the account as a “low risk” option.

The only risk to your capital is if the bank or building society collapses, which is a rare event.

Even if this did happen the Financial Services Compensation Scheme would pay compensation up to £31,700 per person.

A more realistic concern is that the rate of interest could fall below inflation. If that happened, then although the actual amount of money in the account would keep increasing, it would be growing more slowly than other prices were rising, so in “real terms” it would be worth less.

Although your capital is safe, most experts believe that parents would have better chance of earning more money if they put their money into a shares account. So although you’re not risking losing your money, you may be risking not making the most of it.

How much money might there be at age 18?

It is not possible to predict exactly how much money will be available for your child in any CTF on their 18 th birthday. However there are fewer variables with cash accounts since the only considerations are how much money you pay in, and what interest rate the provider pays you. No charges will be deducted from your interest.

The Child Trust Fund website has a calculator which can give an indication of what you might get back.

For cash accounts it assumes an average interest rate of 3.5%. In fact, since the launch of the CTF in April 2005 it has been possible to get at least 5% from a number of different providers. However, that may not continue which is why the calculator assumes a less generous rate.

But on the basis of that 3.5% rate, if you saved £20 a month on top of the £250 you got when the child was born and the government added another £250 at age seven, the calculator suggests by age 18 the fund could be worth £6,710. Of course that figure is in today’s money - inflation is likely to mean that in 18 years’ time it would be worth less in “real” terms.

It’s important to realise however that even though cash accounts are a “safe” option, the amount of interest you will earn is not certain, which means the total your child gets at 18 could be more or less than that figure.

Who is it suitable for?

The government has designed the CTF as a long term savings product. Historically share investments have usually made more than money held in cash accounts. But that’s not guaranteed and not all families will be comfortable with the element of risk that involves.

Parents who would be nervous about putting their child’s money in a stock market-linked account or, perhaps whose children don’t have any other savings in a bank or building society may prefer choosing the cash option.

How do I chose between different cash CTF accounts?

Compare the different interest rates on offer. Make sure you know if there are any restrictions or guarantees attached to the account. Ask what the rate has been since the product was launched - if it’s been consistent so far, that’s a good sign. If it’s relevant to you, check whether the rules about making extra payments suit your circumstances.

Some Credit Unions and building societies offer competitive accounts to people in their local area. The Building Societies Association lists building societies while The Association of Credit Unions has details of credit unions.

The money comparison site Moneyfacts will let you assess some of the highest paying accounts on its free website.

But if your child already has some cash savings, and you are prepared to take some risk with the money, then you could consider a “stakeholder” account.

What is a Stakeholder Child Trust Fund Account?

This is the account which the government will open for your child if you do nothing. Don’t worry about the name - “stakeholder” just refers to the fact that all accounts in this category have to meet certain conditions.

How does it work?

Stakeholder accounts have been designed to let parents take advantage of the benefits of investing in shares whilst trying to limit the risks. But parents should be clear that this doesn’t mean the uncertainties of the stock market have been magicked away - or that the government in any way guarantees money saved in a stakeholder. It doesn’t. And despite the safeguards, some risk remains.

The money you save in a stakeholder CTF account is invested in the stock market subject to various criteria. All stakeholders must invest in a number of shares, they must not charge more than 1.5% of the fund value each year (or £1.50 per £100), they must accept small contributions and most importantly, when the child turns 13, the money in the fund is gradually moved out of shares into less risky investments. This is called “lifestyling”.

However it’s important to realise that, although every stakeholder must follow these rules, they are not all the same. Different providers will invest your child’s money in very different ways. The key to every CTF account is knowing what’s done with the money or, in financial jargon, identifying the “underlying” investment.

For instance, the vast majority of stakeholder accounts are what’s called “tracker” accounts. This means that the money invested automatically follows - or “tracks” - directly the performance of an index of shares. So if the index as a whole grows by 5%, then the money in the account also grows by 5%, minus any charges.

Almost all stakeholders charge the maximum 1.5%. But some providers argue it is difficult to operate their business effectively on that amount. That’s why so many stakeholder CTF accounts are trackers because they are generally cheaper to run than funds where a manager selects individual shares. It is, however, worth pointing out that many non-CTF trackers actually charge much less than 1.5%.

Be careful though. Not even all stakeholder trackers are the same, because it’s possible to follow a number of different share indices. So while the Halifax stakeholder is linked to the FTSE100 index - which includes the top 100 companies on the London stock exchange - those offered by the Nationwide, and The Children’s Mutual mirror the FTSE All Share which comprises many more UK companies. The Abbey stakeholder will even let you track the performance of a number of international stock markets. The idea is to allow the investment to benefit from the potential growth of a wide range of businesses.

As well as trackers, you can also invest in stakeholders which are “managed” funds. That means the money invested doesn’t just passively mirror the performance of an index as a tracker does. Instead a team of professionals actively decide which shares they want to buy and sell. They can choose to concentrate on a specific type of company, or a particular geographical area, with the hope that their expertise will mean their managed investment makes more money than a tracker.

That’s the theory, but in practice, it’s by no means certain that such “active” investments will outperform their “passive” rivals. It all depends whether the person or team picking the shares gets it right - or wrong.

Is the money safe?

No stock market investment is safe. There is a risk that you will get back less money than you have paid in as the value of shares can go down as well as up.

However the various restrictions placed on stakeholders, and in particular the requirement to “lifestyle” the fund - to start moving the money into safer investments at age 13 - have been designed to limit some of the risk. It means if the stock market as a whole is doing badly at the point when the child turns 18, only part of the fund would be affected. Similarly the fact that the money has to be invested in a range of companies stops you having all your financial eggs in one basket.

How much money might there be at age 18?

It is not possible to predict exactly how much money will be available for your child in any CTF account on their 18th birthday. However the Financial Services Authority has devised clear procedures which financial companies must follow when providing an illustration of how an investment might grow. It’s important to understand that an illustration is not a guarantee or a prediction.

These rules don’t take account of the individual investment strategy of any particular company or fund. So all companies offering a stakeholder must use the same figures when calculating what are known as “projections”.

Companies have to show what would happen if the investment grew at 5%, 7% or 9%. You can crunch the numbers on the calculator on the Child Trust Fund website.

Let’s take the same example we used to look at the cash CTF account earlier in the guide. If a family gets £250 from the government when their child is born, a further £250 at age seven, and pays in £20 a month on top, then the projections are as follows:

Of course your investment may not grow at 5%, 7% or 9%. It could be more - or less. And the calculator includes the effect of moving the child’s money out of shares into safer investments from age 13 onwards.

Remember you have to deduct 1.5% in charges whatever “return” you get. So if your money grew at 5%, you’d actually only get back 3.5%. If the overall return was 7% you’d get back 5.5% and if it was 9% you’d get 7.5%.

It’s interesting to note that the figure projected if shares grow by 5% - £6,710 - is the same as for cash accounts. The main difference being of course that with the cash account there is no risk to capital.

Who is it suitable for?

The government believes that the stakeholder CTF account is suitable for most families. That’s why all providers have to offer a stakeholder and why HM Revenue & Customs will open a stakeholder CTF account for your child if you do nothing.

The reason for this popularity is that stakeholders allow families to take advantage of the potential for growth offered by investing in shares. Typically shares do better than cash savings so over the long term the government believes people who invest their voucher in a stakeholder will make more money than those who put it into a cash CTF account. But just because shares have “out-performed” cash in the past does not mean it will always be true in the future.

However the other advantage with stakeholders is that parents who may not have much experience of stock market investment get the benefit of some stabilisers which aim to reduce - but not remove - the risks of investing this way. So it could be a good choice for someone who is prepared to take some risk with their money in exchange for what they hope will be a better return than that offered by a building society account.

It may also make sense for parents whose children already have some other cash savings to put their CTF voucher into a stakeholder account.

How do I chose between different stakeholder CTF accounts?

Each stakeholder adheres to the rules set down by the government in terms of charges and accessibility so ultimately it comes down to choosing one which you think will provide a good return for your child’s money. You can ask providers how the investment has performed since the Child Trust Fund was launched in April 2005, although that past performance is no guarantee to future returns.

Because despite their safeguards all stakeholder CTF accounts are risky, it’s important that you’re happy with the investment strategy underpinning the fund so make sure you understand what will happen to the money.

The financial comparison service company Moneyfacts lets you compare some stakeholder CTF accounts on its free website.

It is possible to opt for stakeholders which follow an “ethical” investment approach. That means the money is not invested in companies which do not meet certain criteria.

For instance the Co-operative Bank offers an ethical stakeholder CTF account which is actually run by another firm called The Children’s Mutual. Its ethical CTF is a tracker, and follows a stock market index called “FTSE4Good”. The index automatically excludes tobacco producers and companies involved in either nuclear weapons or power. Companies which are included must meet standards on a range of issues including environmental sustainability and human rights.

You can also open an ethically-run “managed” stakeholder with another provider called Family Investments. With its CTF acount, managers actively choose companies which meet their ethical criteria and automatically reject companies involved in a similar range of activities such as the arms trade, animal testing of cosmetics and toiletries, pornography, and the sale or production of alcohol and tobacco.

You can get more information about ethical investment in general from an organisation called Ethical Investment Research Services or EIRIS.

There is currently only one stakeholder CTF account which complies with Islamic principles. The Children’s Mutual’s Shariah Baby Bond has been devised in conjunction with Islamic scholars to ensure parents of Muslim children can invest in a CTF account which takes their beliefs into account.

But if you are already an experienced investor and are prepared to take a more active role in deciding how best to invest your child’s money, you may wish to consider a shares CTF account.

What is a Shares Child Trust Fund Account?

How does it work?

This type of CTF account invests in shares but doesn’t conform to the rules which govern stakeholders, enabling providers to offer parents a much greater choice when investing their money.

As with stakeholders, not all shares accounts are the same. And, confusingly, not all of them put all the money invested into shares. It is possible for the people who run these accounts to put money into a number of different types of financial products, including for instance “bonds”, some of which could actually be considered lower risk than shares. Often it is possible to split the money between different funds or even types of investment within one shares CTF.

But this flexibility comes at a price. There is no restriction on how much firms can charge you to manage the money invested into shares CTF accounts. That could mean an annual charge of more than the maximum 1.5% stakeholders can levy. There may be also be what’s called an “upfront” charge. That is, every time you put money in - including your initial government voucher - a percentage is deducted. In some cases this can be as much as 5% - or 5p out of every £1 that you invest. You could have to pay dealing charges every time shares are bought on your behalf as well.

In addition, unlike stakeholders, which have to accept payments of £10, some shares CTF accounts insist on a £100 minimum for regular contributions and as much as £500 for lump sum top ups.

How safe is my money?

No stock market investment is safe - and shares CTF accounts don’t offer the “life styling” which stakeholders do, meaning the money will not automatically be shifted into safer investments in the run up to the child’s 18 th birthday. So, for instance, if there was a stock market fall 6 months before the account matured, then the final value could be less than the CTF had been worth at say age 16 or 17.

There is nothing to stop you deciding when and how to move some or all of the money to try and achieve the same effect, but you would need to be a fairly sophisticated investor before taking on that responsibility.

How much money might there be at age 18?

It is not possible to predict exactly how much money will be available for your child in any CTF account on their 18 th birthday. Providers which offer shares accounts have to follow the same rules about financial projections as those selling stakeholders - that is they have to show what would happen if the investment grew at 5%, 7% or 9%.

However this time two aspects are different - the charges could be higher than the 1.5% stakeholder limit and the money will remain invested in shares until the child is 18. The Child Trust Fund website calculator takes both these into account when crunching the numbers.

So, if you used the same figures as before - £250 from the government at birth and age seven, and a contribution of £20 a month (assuming your provider would accept such a small payment) - but the charge was 2% and the money remained in shares until age 18, the projected totals are slightly different:

But remember, these figures are only an indication of what might happen - you cannot rely on them.

Who is this suitable for?

Shares CTF accounts are more complicated than stakeholder accounts. They may be more expensive. There are no stabilisers. So realistically the only people who should go for shares CTF shares accounts are experienced investors who have a good understanding of the risk and who are willing and able to monitor the investment throughout the child’s life.

How do I choose between different shares CTF accounts?

If you choose a shares CTF account, it’s likely to be because you want more options for investing your child’s money and/or greater control over how this is done. Therefore it’s a question of investigating what the various shares CTF accounts will let you do and selecting the one that best suits your own strategy.

Remember to consider the impact charges will have, and be clear about any restrictions on making extra contributions.

Where can I get more help?

Only you can decide which CTF account is best for your circumstances. And the right type of CTF account for one family might be wrong for another. The decision is not easy but further help is available.

For information on the way accounts work and about the three types of Child Trust Fund, call the Child Trust Fund Helpline on 0845 302 1470 or go to the official government website

The site has a calculator which can give you some indication of how much money might be in your child’s CTF on their 18 th birthday.

However for details of how each provider’s accounts work, you’ll have to contact each company individually. There is a complete list of providers here

You can also find a list of the companies which act as “distributors” for other companies’ CTF accounts here

The financial comparison service company Moneyfacts lets you compare cash CTF accounts and stakeholder CTF accounts on its free website.

The Financial Services Authority produces lots of information about different types of investments. The FSA Consumer Helpline can answer general enquiries about financial products and services but cannot give financial advice or recommend specific financial advisors to you. Call 0845 606 1234.

You may wish to seek professional financial advice to help you decide which is the correct Child Trust Fund for your family‘s circumstances. Some advisors will charge a fee for their recommendations. Others will take commission from the provider of any product they sell you. Not all advisors can advise on the full range of products available. An advisor in a high street bank for instance is likely to be able to provide information only about that company’s own products.

The Financial Services Authority produces a useful guide to Financial Advice

A number of organisations can help you find a financial advisor near you, including IFA Promotion, The Institute of Financial Planning and My Local Adviser

For free advice and information on your legal rights at work, maternity and paternity leave, time off for family emergencies, tax credits and benefits, childcare options and negotiating flexible working, check out Working Families factsheets, call 0800 013 0313, text 07800 00 4722 or email edads@workingfamilies.org.uk

What happens NEXT?

Choosing and opening a Child Trust Fund account is only the beginning.

Whatever type of account and whichever provider you choose, you should keep it under review to make sure it still suits your circumstances.

You will be sent an annual statement every year. This will include details of how much was in the fund at the start and end of the year, the amount paid in and the cost of any charges levied. Make sure you tell the provider if you move house so you continue to receive this information.

The statement should act as a useful prompt to check you are still happy with the account. So for instance, if you have a cash CTF account you should compare the rate on offer from your provider with those available with rival companies. If you have a stakeholder or shares CTF account you should look at how the investment has performed.

Remember if you are unhappy with the account you can transfer it at any time without penalty. CTF accounts are designed to be held for the long term so realistically it’s not a good idea to constantly move the money about but if you do decide to go ahead, you can change provider or even move it to a different type of CTF account altogether. You cannot split the account so you will have to move the fund in its entirety.

More money from the Government

On the child’s seventh birthday, they will qualify for another payment from the government. As at birth all families will receive £250. Families on a low income will also get the additional £250, again paid directly into the account once their child tax credit award has been verified. As long as it meets the criteria in the year that the child turns seven, a household could qualify for the extra payment even if it only received the basic payment when the child was born.

The government is also considering making a third payment at secondary school age, but no decision has yet been made about whether this will happen, how much it would be or the age when it would be paid.

Friends and family

It’s not compulsory to add any further money to your child‘s CTF but parents, friends and family can, if they want, collectively contribute up to a maximum of £1,200 per year to each account. The year starts on the child’s birthday (apart from the scheme's first year, when it starts on the day the account is opened, and runs to the day before their next birthday).

The £1,200 allowance is not transferable - so if you only pay in £1,000 in one year, you can’t add £1,400 in the following year.

It’s worth co-ordinating contributions to make sure the limit is not breached because many providers will simply leave any surplus money sitting in a “holding account” until the end of the year where it may not earn a decent rate of interest.

If a child has a stakeholder account, all providers must accept payments of £10 or more but some may agree to take less. You can pay money into a stakeholder account by cash, cheque, standing order or direct debit.

The rules about making extra payments into cash or shares accounts will vary - check with your individual provider.

How will my child get the money?

Once the child is 16 he or she can become the “registered contact” on their account and take responsibility for the management of their money. They will receive the annual statement and can decide to transfer the money to a different account.

But they cannot access the money until their 18 th birthday, when the account will cease to be a Child Trust Fund account. There are no restrictions on what they can do with the money at that point, and they may choose to withdraw it all. In any case whatever their decision, the CTF account must be closed and any money transferred into a new savings or investment account.

The Government has announced that it will allow the money in a Child Trust Fund account to be rolled over into an ISA on maturity. That will allow the money to continue to grow tax-free.

There will be no tax to pay on any money withdrawn when the CTF account is closed. However depending on whether and how the money is re-invested, and on the child’s individual financial circumstances, they may have to pay tax on any income the money generates in the future.

Similarly it is possible that the proceeds of their CTF account may affect any benefit claims they make, or for instance, impact on means-tested help with things like university fees.

DISCLAIMER:

The information in this guide does not constitute any form of advice, recommendation, representation or endorsement and should only be used for general guidance

Written by Jennifer Bailey for Working Families

© 2007 Working Families

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