What is a Child Trust Fund (CTF)?
CTF accounts were created by the government in 2002 to kickstart and encourage parents to save for when their children turn 18. The government initially deposited money into the account and then the parents or guardians of the child were able to add to it on the child’s behalf, up until they turn 18. There is a limit as to how much you could deposit each tax year which has increased from £1200 in 2002, to £9000 in 2020.
A CTF is also tax-free. Yes, you heard right, tax-free! This means that whatever money you deposit won’t be taxed when it’s withdrawn in the future. Once the child has turned 18, they will have access to the money to use they wish. This is when the product ‘matures’.
When will my Child’s CTF mature?
CTFs begin maturing in September 2020 when the first child reaches 18 years of age.
When a child turns 16, they can take control of the CTF if they wanted to. They can change how their money is invested and change provider by transferring their account and signing up to a new provider. If the child decides not to manage their fund, it remains with their parent or guardian until their 18th birthday.
Who was eligible for a Child Trust Fund?
CTFs were set up by the government for children who were born in the UK between the 1st of September 2002 and the 2nd of January 2011.
Types of CTF accounts
There are three different types of Child Trust Fund accounts that parents could choose for their children. These were Stakeholder, Shareholder and Cash accounts.
• Stakeholder account - This allows you to own a percentage of shares within a company. With a Stakeholder CTF, any money which is still invested in shares when the CTF matures will be sold automatically and the cash will be passed on to the child.
• Shareholder – This account allows you to leave a contribution of the money invested into the stock market. By investing into the stock market, your money could potentially grow or fall depending on the outcome of your shares.
• Cash account - The Cash CTF account is where you can leave any contributions, providing they don’t go above the yearly maximum allowance and earn interest on it. This tends to be the safest and most popular option.
Can I still get a Child Trust Fund?
The government stopped offering Child Trust Fund accounts after 2011 and they replaced them with the Junior Individual Savings Account (JISA). However, anyone who still has a CTF can carry on depositing money into their account until their child turns 18.
JISAs are also a tax-free savings account for children and many of the same rules apply. However, if you were to open a JISA today, the government does not contribute and the only money that goes into the JISA is the money which you deposit.
What can my child do with a matured CTF?
Once a child turns 18 and the CTF matures, they have a decision to make about what to do with the money. But what are their options?
- Celebrate and spend - As the money is now theirs, they can spend it however they like!
- Become a savvy saver - Some children may choose to carry on saving their money in a cash savings account or cash ISA. Both will offer interest on the money and they are often easily accessible, so the money can be withdrawn at any time.
- Invest it - Although most 18-year-olds won’t be familiar with investing, they could invest their savings in a Stocks & Shares ISA to potentially grow their money further. We would always recommend that if they were to invest their money, they do so for at least 5 years. It’s also worth remembering that when investing your money is at risk and you may get back less than you put in.
That’s our round-up on Child Trust Funds. Did you know that it’s been estimated that more than one million child trust funds are ‘lost’ and haven’t been claimed? In most cases, this is due to HMRC opening the account because the child’s parent or guardian failed to do so. If you think your child may have been eligible, it's worth checking. More details on how to find a lost CTF can be found on the HMRC website.