Child Trust Funds (CTFs) were introduced in April 2005 by the UK government to encourage long-term saving and give all children a financial boost.
While new accounts were discontinued from January 2011 and replaced with Junior ISAs, many children are now eligible to claim their Child Trust Fund for the first time. But account owners and their parents may be unaware of their entitlement to their modest nest egg.
What is a Child Trust Fund?
Child Trust Funds (CTFs) were once a popular way to put aside money for children, building on an initial contribution made by the government. When CTFs were introduced, 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.
Around 6.3 million Child Trust Funds (CTF) have been set-up, around 40% of which were opened by the government on parents’ behalf when vouchers went unused – so many of these children could have a hidden windfall waiting for them.
In other cases, 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 £9,000, the same as a Junior ISA. A child cannot have both types of account.
There were three CTF options available:
Similar to a Cash ISA, with interest earned on savings paid tax-free.
Specific stock market funds with charges capped at 1.5% a year and invested in a mix of investments.
- Shares based
A ‘DIY’ choice of investments.
Who was eligible for a Child Trust Fund?
Child Trust Funds were available to children born between 1 September 2002 and 2 January 2011:
- The Government initially provided families with 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. 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.
Much of the ‘free’ money in CTFs will therefore be £500 per account or less, plus interest or investment returns. However, some children 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.
What happens to a Child Trust Fund at 18?
Shortly before a child reaches 18, the CTF provider should write to them stating the value of the account and the maturity options: Taking the money as cash, investing it in an ISA or a mix of both.
Those who do not respond should have their funds rolled over into either an ISA or to a ‘Matured CTF’ until the holder gets in touch. Both are tax-free accounts and can be transferred to another ISA provider without affecting the usual adult ISA allowance of £20,000 per year.
How to find your 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, or you can contact them by post. You will need a ‘government gateway’ ID. HMRC should get back to you within 3 weeks of your application with details of your CTF provider.
Once you have tracked your Child Trust Fund down, you can continue to contribute into this pot, or transfer into a Junior ISA.
Junior ISA vs Child Trust Fund
While Child Trust Funds are no longer available, JISAs offer similar benefits. In 2015 the government made it possible for people with CTFs to transfer to a Junior ISAs - here are several reasons why it may be a good idea to switch accounts:
- Some Child Trust Funds don't accept new investments
- There are more Junior ISA options in the market to choose from
- Interest rates are generally higher in Junior Cash ISAs
- Junior Stocks and Shares ISAs are often significantly cheaper than CTF counterparts when it comes to stock market investments
- Both Stocks & Shares JISAs and ISAs offer a lot of flexibility on how you invest – often with a choice of shares, funds, investment trusts and bonds
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.
Open a Junior ISA today
You can transfer a Child Trust Fund into a Junior ISA with Charles Stanley for free. Just let us know who your current provider is, and we’ll take care of the rest.
The Charles Stanley Junior Stock & Shares ISA offers a variety of benefits, including flexibility on where you invest for your child:
- Invest in a wide range of assets
- Tax efficient
- Make savings work harder
- Automatically rolls into an adult ISA at 18
Ready to invest in your child's future? Follow the link for more details:
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