Savings account Guides

Child trust funds

Updated: Tuesday 14 June, 2011

By Martin Fagan - news@consumerchoices.co.uk

Child Trust Funds were abolished by the coalition government in January 2011. Examine your options if you already have a Child Trust Fund for your kids.

Child Trust Funds (CTF) are long-term tax-free savings accounts for children born between 1 September 2002 and 2 January 2011. Children born after 2 January 2011 cannot open a CTF.

If that’s case for you, read our guide on the different ways to save for your child's future.

But if you have children born between those dates and have already opened a CTF, what now?

I’ve got a Child Trust Fund

If your child already has a CTF, their account will continue to operate as it currently does. However, if your child reaches seven after 1st August 2010, they will not be eligible for the extra payment of £250 that was normally paid out on the child’s 7th birthday.

But you can still contribute up to £1,200 a year into your child’s account (the new CTF year starts on your child’s birthday).

However, there is no indication that the current or subsequent governments will increase this annual limit in line with inflation as they do with the ISA allowance.

Use it or lose it

The £1,200 annual contributions limit is a “use it or lose it” deal: you can't carry any unused amount forward to the following year. For example, if you pay £900 into the account in one year, you can't add an extra £300 on top of the £1,200 limit the next year to make up the difference.

Your child’s fund can be in a savings-based or investment-based account, provided by the financial institutions that offer CTF accounts. Some offer one type and some offer both.

Bear in mind though that as the investment-based CTFs are linked to the stock market, there is a chance you might get back less than you originally invested.

Transferring savings

Existing CTFs can be transferred from your current provider to a new provider at anytime during the account’s lifetime. If you wish to transfer, contact the financial institution you want to move your child’s savings to and they will usually complete the transfer on your behalf.

Any gains made in a CTF are exempt from tax and all the money paid into the account belongs to your child - they can only access it when they reach 18.

Once they reach 18, the cash is withdrawn as a tax-free lump sum and the fund will close.