By Marc Simpson
Figures from HM Revenue & Customs show that 136,000 child trust fund vouchers have still not been invested. Of the 555,000 vouchers issued in the 12 months up to June 2011, a quarter have not been used. Those who do not invest the vouchers themselves will automatically be allocated a default stakeholder account, which may not be the most suitable for their savings needs.
They are also ineligible for the Junior ISA, a new type of account made to replace the Child Trust Fund for babies born from January 2011. For this reason many parents have also been turning to Child Tax Exempt Savings Plans, offered by providers such as Shepherd’s Friendly, in an attempt to increase their tax-free savings for their children.
Merge
Industry experts have called for the Junior ISA and the Child Trust Fund to be merged as they say that with no new accounts being opened, CTFs are likely to become more expensive with much limited options. While many have praised the raising of the allowance on CTFs to £3,600 to match that of Junior ISAs, they say more must be done to integrate the two types of account.
Many parents have joined in the call for the accounts to be merged and have also pushed for the contribution allowance to rise further, citing the increasing cost of tuition fees as a reason to allow for larger tax-free savings for children.
While the Government has given no indication that it will increase the allowance any higher than with inflation, accounts such as Child Tax Exempt Savings Plans (CTESP) can be held with either a Junior ISA or a CTF and therefore allow for greater tax-free child savings.
Vouchers
Children born between September 1 2002 and January 2 2011 are eligible for a Child Trust Fund and their parents should have already received a voucher worth £50 or £250, depending on the circumstances, with which to open a CTF. Junior ISAs are available for all children under 18 born outside those dates.
Whichever account the child is eligible for, they are also able to have an Ethical Child Savings Plan opened for them, a special type of CTESP that only invests in businesses with ethical practices, in order to increase their tax-free savings.
MyEggNest's Top Tip: Shepherds Young Saver Plan
Child Tax Exempt Savings Plans (TESPs) are currently the most tax efficient way to save for your child - and Shepherds Young Saver Plan gives you the chance to lock away more per month than any other TESP.
The plan allows parents to save from as little as £7.50 to £100 each month - 4 times more than any other provider - and offers sickness benefits, along with the ability to withdraw up to 25% of the fund after 10 years.
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