Child trust funds are designed to give your child a financial head start in life.
Not long after the birth of your little one you will receive a £250 Child trust fund (CTF) voucher through the post which enables you to open an account. All you need to do to ensure you receive this voucher is complete an application for Child benefit. As well as the CTF voucher, children in families with lower incomes  will automatically get an additional payment of £250 from the govenment once a Child Tax Credit award has been finalised. This will be paid directly into the accounts of children who live in families receiving Child Tax Credit (CTC), where household income is not greater than the CTC threshold.

A child trust fund is more than just a way of saving money, it is an investment in your childs future.

The idea of a CTF is to ensure your child has savings when they reach 18 years old. It is an opportunity for your child to get a financial foothold whether it be a contribution towards university fees, a deposit on a house or a new car. In addition it is hoped that having a CTF will encourage your child to not only save money but to understand the benefits of saving money.

There are three main types of Child Trust Fund (CTF) accounts:

Savings accounts – this works like a normal bank account. If you invest £500 you will get £500 back with the addition of an element of interest.

Accounts that invest in shares – here the money invested is placed on the stock market. As a result if share prices rise so does the value of the investment. The downside of this type of investment though is that shares can go down in value as well as up. the risk therefore is that if share prices fall so does the value of your investment.

Stakeholder accounts – Thes type of accounts are a mix of the two above. Initially the money is invested in shares and is subject to the associated risks. When your child reaches 13 though the fund is transferred into a saings account to remove the risk attached to the fund.

Which type of account should I choose? This is entirely a personal choice. However, we will say this, the main factor to consider when deciding which type of account to open is the risk attached to each investment. A golden rule for investing is that the higher the potential return the more risky it will be. As a result potentially higher returns through share investment must be weighed up against the increased risk.

How much can you pay into a CTF? The maximum that can be paid into a CTF in between any two birthdays of your child is £1,200 (excluding the government contributions).

For more information about the Child trust fund scheme click the CTF link above. This will take you to the governments CTF website where you will find out all you need to know.

What does the government contribute? As we have already established, once you have applied for child benefit you will receive a £250 voucher to open the CTF. This will then be added to with another £250 voucher on your childs 7th birthday so long as they fit the qualifying criteria at that point. the criteria are that your child must be living in the UK at the time of there 7th birthday, have a child trust fund and be in receipt of child benefit.

Once again children in families who qualify for full Child Tax Credit (CTC) with an income below the CTC threshold on the child’s 7th birthday will qualify for an additional £250.

Author: SuperDads

We’re here to make a difference. Superdads not only offers advice but we are her e to promote the importance of fatherhood. Many people are oblivious to the fact that Dads really do matter and this is something we’d like to put right.

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