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LIFESTYLE

What they are, how to find them and how to spend them



The heady days of January 2005 seem a long time ago now.

The very first winner of The X Factor had just topped the charts, Tony Blair was Prime Minister and a new scheme was being launched that would put money in the pockets of children all over the country.

Child Trust Funds were based on a big idea – to give everyone born from September 2002 onwards a chunk of savings that would grow over time and give them a headstart in life. No longer would the safety net of investments and assets be a reserve of the well-off.

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By 2011, the scheme had been killed off. But its legacy remains in around six million accounts, the first of which are maturing this month as the earliest recipients turn 18.

For many, the policy might have been forgotten about altogether. But those Child Trust Funds (CTFs) are still there for anyone born in the UK between 1 September 2002 and 2 January 2011.

For parents of younger children, there is still time to maximise the return on this nest egg. For teenagers about to come into their cash, it is a good time to consider what to do next.

The details

The initial amount paid into the accounts was £250 for the majority of children, with another £250 added when they turned seven. Those deemed low-income received two payments of £500.

This cash was then invested and is expected to have grown over the years since it was set up. All money earned in the accounts is tax-free, including interest and capital gains. Parents are also able to add up to £9,000 a year into the account. One provider, EQi, estimates that the average balance of CTFs on its investment platform is £6,500.

The last CTFs will mature in 2029. Children can take control of the account at 16, but are not able to withdraw the money until they turn 18.

How to find the fund

Even the most organised among us may have trouble locating documents from more than a decade ago.

You can fill in a form asking HMRC where the account was originally opened if you have forgotten the provider. Any old paperwork you can find should have the child’s Unique Reference Number to help with this. But if you cannot locate this, you can use the child’s National Insurance number.

Many children are not yet old enough to have received their NI numbers. HMRC told us that families can contact them directly, including the child’s full name and date of birth, to find an account. For other details, visit the Government’s website.

Should you move it?

As people remember the existence of CTFs, an issue with their fees has also come to light. Although CTFs grow over the years, they are also subject to fees – which in many cases are higher than those you can get on alternative accounts.

There are different types of CTFs, but many are stakeholder accounts which invest in shares. The Government limited the charges on these to no more than 1.5 per cent, but this meant most providers set their fees at the maximum. Meanwhile, many rival products charge smaller fees.

The app-based child savings and investment account Beanstalk estimates that if everyone with a stakeholder CRF switched to a lower-cost Junior ISA, the total saving on fees would be in excess of £200m.

Some funds may be losing out due to higher fees (Photo: Anthony Devlin/PA Wire)

Julian Robson, CEO and founder of Beanstalk, said: “When the CTF was set-up, it was intended to be a long-term and low-cost way to help every child save. However, when the government set an annual ‘fees cap’ of 1.5 per cent for stakeholder CTFs, this soon became the default rate. Fast forward to today, and this means that children with CTF investments could be paying twice as much in fees compared to some Junior ISA alternatives.”

You cannot have both a Junior ISA and a CTF at the same time, and you cannot transfer back into a CTF once the switch has been made.

What whould you do with the cash?

On maturity, CTFs can either be cashed in or transferred into an adult ISA. The first 420,000 funds will mature this year.

At this point, parents can’t stop their children from doing what they like with the money, but there is no harm in offering a little advice.

Richard Pearson, director at CTF provider EQi, recommends moving the savings to an ISA initially while recipients consider what they want to do. This is also beneficial tax-wise.

“Teenagers can move their CTF balance into a tax-free ISA and it won’t count towards the normal £20,000 annual allowance,” he says. “This means you are allowed to save up to a further £20,000 a year in an ISA, in addition to whatever you transferred from your CTF.”

One option for the long-term thinker could be opening a Lifetime ISA, which gives savers a 25 per cent bonus on the amount invested. This can only be used towards a mortgage or for retirement savings.

Alternatively, if teenagers are not sure when they might need the money, they should consider an easy-access savings account.

Case study: ‘It was easy to transfer to a Junior ISA’

Ozlem Giray with Arda (Photo: supplied)

Ozlem Giray, maths teacher and mum to Arda, aged 10

“My son had about £4,000 in a Child Trust Fund which was being charged 1.5 per cent per year. We found it difficult to stay on top of what was going on with his account. We only received a statement once a year.

“I had already saved £200 by using KidStart, and when they launched their Beanstalk Junior ISA I looked into how much we could be saving on fees.

“It was easy to transfer Arda’s CTF and I love the fact that we can keep track of his account through the app. We can also manage our regular contributions very easily – at the moment I’m able to save a bit more but if things change, I can simply change the amount via the app.

“When he has access to his money at 18, Arda’s dad would like him to put it towards setting up a small business.

“Personally, I don’t mind what he spends it on, whether it’s a car or travelling.

“Arda is our only child, so we’ll do our best to help out with his university expenses.

“I think he would like to spend some of his money on travelling because he says he wants to be an explorer when he grows up; he’s a typical Sagittarian!”

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