Trust fund or Savings account???

Hi LeXy

You raised two very interesting but separate points. What are the chance of the Child Trust Fund collapsing and what are the best ways to save for your children's future? The answer to the first question is that this is highly unlikely because the CTF is managed by the banks (not the government) and all the large banks are duty bound to the Financial Services Authority's and the Financial Ombudsman complaints service and more importantly the Financial Services Compensation Scheme.

Therefore, if your bank did collapse, you'll be entitled to the first £2,000 and 90% of the next £33,000 of your savings back. So if you're worried, never save more than £35,000 with any one bank or building society (which most of us will not fall in to that category).

However, the question of whether to save in a children's account or a CTF is a more difficult question to answer. First of all, you should, at the very least, put your £250 in a CASH CTF. (click here for an explanation). This works very similar to a long term savings account but the interest rates here are a lot higher.

Your second question is should you invest this in an equity base CTF or keep it in cash? This is entirely up to you and how you view risk. If you don't want to gamble on the stock market then keep it in a cash CTF. However, most commentators will agree that in the long term, an equity based investments will outperform cash savings (though this is debatable). However, Children's Savings Accounts are only really tax efficient when the child is not entitled to a CTF.

Hope this helps. The information in MyEggNest and MyEggNest Forum is for educational purposes only and should not be considered as financial advice. MyEggNest always recommends considering all information carefully and seeking Independent Financial Advice before taking action.