How The UK Government Child Trust Fund Works
Children's Savings and Developing Kids Money Management Skills
Mar 7, 2009
Developing kids money management skills at an early age is critical. It not only sets them up for adult life, if done early enough, it can also help develop a considerable sum of money for the future. The government introduced a Child Trust Fund voucher to help boost children's savings. With property prices not currently affordable for first-time buyers, the introduction of CFT's couldn't come soon enough.
What Are Child Trust Fund Vouchers?
Any child born after 1st September 2002 is given a Child Trust Fund (CTF) voucher worth £250. Furthermore, should parents on a low income qualify for full tax credit, they will be given a Child Trust Fund voucher worth £500. It must be invested within 12 months and forms a useful source of children's savings for their future. The government hopes that it will help in the future in terms of buying a house.
How do Child Trust Fund Vouchers Work?
A Child Trust Fund (CTF) can be topped-up with up to £1,200 per annum through either family gifts, pocket money or an income from suitable jobs for children, including paper rounds and household chores. As a child cannot spend the money until the age of 18, it really helps develop kids money management skills. This is further assisted by the fact that children receive a further Child Trust Fund voucher for £250 at age seven.
How Can Child Trust Fund Vouchers be Invested?
- Deposit accounts.This type of Child Trust Fund is little more than a savings account and allows children's savings to benefit from interest growth only. In a low interest rate climate, any capital gains will be minimal.
- Stock market. Child Trust Funds that invest in the stock market, although more volatile, have historically out-performed deposit accounts. There is no cap on charges for stock market CTF's.
- Stakeholder. A stakeholder Child Trust Fund is a stock market investment that is later switched to safer investments as the child draws closer to the age of 18. This is to protect any capital gains in earlier years. Charges on stakeholder Child Trust Funds are capped, in an identical way to stakeholder pensions, at 1.5%.
Ethical Child Trust Funds are available for those that only wish to put money into green investments. Should a parent fail to choose an investment vehicle for the Child Trust Fund voucher, the money will automatically be put into a stakeholder CTF. However, this can be changed by a parent at a later date. A statement will be provided annually to document CTF performance.
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