Kids and money - Child Trust Funds
Child Trust Funds
Overview
how Child Trust Funds work
deciding how much to save
Child Trust Funds (CTFs) were introduced in 2005 to give both parents and children an incentive to save.
CTFs enable the child to build up a lump sum that they can access when they turn 18. They are long-term tax-free savings accounts available for children born between 1 September 2002 and 2 January 2011.
Originally, the scheme provided all children born on or after 1 September 2002 with a £250 CTF voucher at birth and a further £250 at age seven, with children in lower income families receiving an additional £250 for each payment.
From August 2010 until 2 January 2011, CTF payments to new parents were reduced from £250 to £50, with children from lower income households receiving £100, down from £500. The additional payment when the child reaches seven years will now not be paid.
Children born from 3 January 2011 do not qualify for a CTF account, and no further government payments will be made from this date.
For those that already hold a CTF account, any money saved in it will continue to grow tax-free.
The money belongs to the child, but can’t be withdrawn until they are 18. You can add money to existing CTF accounts up to a limit of £1,200 a year. Additional payments can make a big difference to the final size of the fund.
For example, two payments of £250 invested until the child's 18th birthday will produce a lump sum of £851 if the fund grows by 3%.
An additional contribution of £25 a month will produce a nest egg of £7,564. If the maximum £100 a month is invested then the child will have a fund of £28,980 on their 18th birthday (assuming 3% growth per annum).
In autumn 2011 the government plans to replace CTFs with a Junior ISA. This will be backdated to ensure that children who were born too late to get a CTF do not miss out on tax-free savings.
Find out more at the Directgov website >
See also Children's cash savings and Tax-free savings for children >
