Andrew Hagger, PR and communications manager for Moneynet, stated there was only six providers offering regular savings accounts available to children. He further said that more competition and innovation was required from the leading building societies and banks to improve the range of accounts on offer to children. The findings also showed that 38% of accounts available were paying 0.5% or less where the invested amount was less than £1,000.
The best available rates were for funds invested in Child Trust Fund accounts where the average was 2.36%. Child Trust Fund accounts were introduced in 2005 but backdated to 2002 and provide all children with a kick start of a £250 voucher provided at birth by the government which has to be invested in a long term savings account. Children from low income families receive a £500 voucher. The government has recently extended the Child Trust Fund programme such that additional £250 (£500) vouchers are given when the child reaches their 7th birthday. In addition to the vouchers, parents family or friends can make additional contributions of up to £100 per month or £1,200 per year to help the account grow.
Child Trust Funds are long term tax incentive savings accounts where the money cannot be accessed until the child reaches their 18th birthday. All interest, dividend or capital growth within the account is tax free. Given the long term nature of the account, the rules around changing provider and type of account are very flexible. Therefore, parents can elect to move Child Trust Fund manager or the type of account in which the money is invested if they feel they are not getting the best return for their child. Money can be invested in Child Trust Funds that have the nature and characteristics of a deposit account or in more adventurous funds, bonds stocks or shares. Switching providers and fund types is low cost except where they are invested in stocks and shares where there may be dealing charges.
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