Recent government statistics show that nearly three quarters of all parents are opening a Child Trust Fund account for their offspring in the first year of life. 4.6 million children now have a Child Trust Fund account with around £2bn invested in a wide range of accounts.
But that still means that a quarter of parents fail to take advantage of this government sponsored initiative and get the initial voucher, worth at least £250, invested and earning for their child.
Each child receives a £250 voucher at birth from the government and parents have contributed an additional £289 per child (in the year to April) to top up the account. Children from low income families get a voucher worth £500. Additional vouchers worth £250 (or £500) are paid again when the child reaches 7.
Some analysts, however, are not fully behind the Child Trust Fund scheme that was launched by the Labour government in 2005. The money invested in a Child Trust Fund cannot be accessed by the family or child until they reach 18 and then can be used for any purpose. Martin Lewis, of MoneySavingExpert.com, says that a better move would be to invest savings into an ISA where you still get the tax benefits plus have access to the money at any time.
The three quarters of parents that have opened an account can choose where to invest so as to optimise the return on their Child Trust Fund account. Options include deposit type accounts through to riskier stocks and shares or funds based alternatives. For the quarter of parents that do not elect within the first year where to invest the initial voucher, the government will place the funds into a default stakeholder type account. This invests in stocks and shares before switching to less risky bonds when the child reaches 13.
The Conservatives have already stated that they will limit the availability of new Child Trust Funds to those families earning less than £16,040 per year if they get into office next year.
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