If you’ve had a baby or are having one soon, then amid all those thoughts of nappies and sleepless nights, you may well be wondering if you should get them a Child Trust Fund. After all, it’s amazing how much becoming a parent focuses the mind on the future.
Suddenly you find yourself eating more veg, driving more carefully, even taking up jogging. And your financial security becomes more important than ever. But probably even more important to you, is the wellbeing and financial future of your child. That’s why many new parents look into opening a Child Trust Fund.
But there’s some bad news. It’s gone. It’s over. It’s been a casualty of austerity – in fact, it was one of the first casualties. The original scheme, complete with a helping hand from the government, was scrapped by the Conservative-Lib Dem coalition for any children born after 1st January 2011 (you’ve got to feel for those kids born just minutes too late).
Aww, what? That sounded good!
It certainly was a very popular initiative. Introduced in 2002, the trust funds were tax-free children’s savings accounts. Parents or guardians received a £250 voucher to invest in an account in the child’s name, up to £500 for lower income families, with the money being held securely until their 18th birthday.
Family and friends could make payments into the account, tax-free up to a certain amount. Many of these Child Trust fund accounts still exist today and children born in time to qualify can still receive payments into them – up to a maximum of £4,368 per year.
So now what?
Well, Child Trust Funds were replaced with a new scheme – Junior ISAs. There may not be a cash injection from the government anymore, but it does still provide a tax-free helping hand for the next generation.
Parents and guardians of children who still have a Child Trust Fund can either stick with the old-style account or transfer it into a Junior ISA if they prefer, but they cannot have both.
Many have chosen to transfer because the rates are usually better among Junior ISA providers. There’s not much competition among Child Trust Funds because there aren’t any new customers.
If you’re a new parent looking for a good way to save or invest for your child, though, the good news is that there are some really excellent Junior ISA products. Just as with the Child Trust Funds, money paid in can be saved as cash or invested in stocks and shares.
And just as with Child Trust Funds, Junior ISAs can have a capped amount paid in annually (£4,368 a year for 2019/20).
What’s more, they have all the benefits of Child Trust Funds except the government cash: they are tax-free, the money is safe until the child reaches 18, and the value of your contributions has plenty of time to grow.
The forgotten accounts
Maybe you’re reading this because you think your child might have a Child Trust Fund but you’ve mislaid it.
Don’t worry – if that is what has happened then you’re not alone. HM Revenue & Customs says there are more than 700,000 dormant Child Trust Funds. The good news is that you can locate your child’s fund using this official search tool.
Any savings are good savings
Whether your child gets a trust fund or a Junior ISA, what matters is that they have a financial bonus the day they turn 18.
There’s a risk that it will get blown on one really good party, but hopefully it will be put towards a gap year, university, a first car, house or some other worthy cause.
And if money is tight and you are worried you can’t save enough for it to be worthwhile, then remember that it has up to 18 years to grow. With interest on savings or growth in stocks and shares, even a small monthly saving can lead to a sizeable nest egg for your child.
Even just £10 a month can become a lump sum of thousands by the time your baby is an adult. Which could make for a very happy 18th indeed.
Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.