Savings account Guides

Child trust funds

We explain how child trust funds work, what the benefits are and how to accumulate the most money for your child… (Updated 12/8/09)

If you want to give you child a cash boost when they turn 18, then a child trust fund is an easy way to do so.

Luckily, the government is giving £250-£500 vouchers to every child born in the UK since 1 September 2002, to start off their own trust fund.

Our handy guide to child trust funds will help you give your child the best possible financial start to their adult life.

Compare child trust funds

• What is a child trust fund?
• What are the benefits of child trust funds?
• What are the risks of child trust funds?
• How can I invest my child’s money?
• How do I know which is the best type of child trust fund account for me?
• How much money will my child get when they turn 18?
• Where can I open a child trust fund account?
• What's available?
• Our recommendation

What is a child trust fund?

Child trust funds (CTFs) are savings and investment accounts exclusively for children. The government is giving a voucher to every child born since 1 September 2002 to get them started. The aim is to give children a financial boost when they start their adult life and help them understand personal finance.

When you apply for child benefit, the government automatically sends you a £250 voucher (£500 for households with low incomes), which should be used to open a CTF account for your child. The government will then add an additional £250/£500 to your child’s CTF when they turn seven.

A CTF account cannot be touched until your child turns 18, at which point they will assume responsibility for it and have access to the money to help start their adult life.

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What are the benefits of child trust funds?

• They offer a financial boost to boost your child’s adulthood, giving them a tax-free lump sum when they turn 18, to do with as they wish. This might be especially helpful if they want to go to university
• With CTFs neither you, nor your child, will pay tax on any income or gains received
• CTFs can be rolled over into cash ISAs when children reach 18, therefore the tax-free status can be enjoyed for a prolonged period
• No-one can touch the money in your child’s CTF account until they assume responsibility when they turn 18
• CTFs can help teach your children to understand personal finance, including the benefits of saving money.

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What are the risks of child trust funds?

• There are risks associated with share and stakeholder CTF accounts which invest in company shares to earn interest – balances in these accounts could fall in value if share prices fall, lowering your child’s eventual CTF total.
• Also, when your child turns 18 they become responsible for the money in their CTF. This means that if they want to use the money to buy a TV and games console or go out with their friends, they can.

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How can I invest my child’s money?

There are three types of accounts you can open for your child’s CTF account – savings accounts, share accounts and stakeholder accounts. Each has its own pros and cons, and you can change the type of account or account provider at any time until your child is 18 (although you should check with your account provider what charges might be levied).

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How do I know which is the best type of child trust fund account for me?

When choosing how to invest the money use careful consideration and research. If you already have experience of investing money in shares then you might consider opening a shares account, but if you are a novice investor then a lower risk savings or stakeholder account might be best.

(1) Savings accounts– These work just like normal savings accounts, except that no-one can withdraw any money until your child turns 18.

• For: The safest CTF, they are very low risk and offer a flat rate of interest.
• Against: They are not likely to earn as much interest as other types of CTF accounts over the long-term.

(2) Share accounts – With these, your child’s money is invested in company shares.

• For: They may offer higher returns than savings accounts, especially if the company’s share price goes up.
• Against: They are high risk and if the company’s share price falls, then so will your CTF investment.

(3) Stakeholder accounts – Your money is invested in lots of companies to minimise risk and when your child turns 13 the money is moved to lower risk investments like bonds or cash.

• For: Lower risk than share accounts because of the wider spread of investments. It is the type of account the government will automatically invest your CTF voucher in, if you don’t do so yourself.
• Against: Again, there is a risk of falling share prices, albeit a lower risk than with share accounts.

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How much money will my child get when they turn 18?

This depends on how much parents, family and friends put into the account each year (they can deposit up to £100 a month), and what type of account you put the money into. Below are some estimated examples taken from a calculator on the Government’s CTF website (www.childtrustfund.gov.uk)

This table shows the totals at 18 years old for a child born on 12 August 2009, who is given a £250 voucher at birth and another at aged seven, with £10 a month invested into the CTF:

Type of account	Investment	Total at 18 years old
Savings account	£10/month	£3770 (Estimated interest rate 3.5%)
Shares account	£10/month	£4,420 (Estimated interest rate 5%)
Stakeholder account	£10/month	£4,240 (Estimated interest rate 5%)

The following table shows the totals at 18 years old for the same child, but with £100 a month invested in the account.

Type of account	Investment	Total at 18 years old
Savings account	£100/month	£30,220 (Estimated interest 3.5%)
Shares account	£100/month	£34,970 (Estimated interest rate 5%)
Stakeholder account	£100/month	£33,590 (Estimated interest rate 5%)

Tables correct as of 12/8/09

You should be aware that these tables use estimated rates of interest. The rate of interest you will receive depends on the account you choose. If you choose a shares CTF or stakeholder CTF the value of an investment may fall as well as rise.

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Where can I open a child trust fund account?

There are dozens of banks, building societies and others who provide CTF accounts, all of whom have to be approved by HM Revenue & Customs.

The Government’s own CTF website (www.childtrustfund.gov.uk) has a full list of CTF account providers and the types of accounts they provide.

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What's available?

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Our recommendation:

When choosing an account provider, remember to find out:

• What fees will be incurred for running the account and/or changing your account type or provider?
• Is there a minimum deposit required to invest in the account?
• What is the likely return on the money invested?

When choosing a child trust fund, make sure you shop around and check the terms and conditions each account before making your decision.

Compare child trust funds or use our useful savings calculator.

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