Withdrawals from Child Trust Funds will become possible for millions of people turning 18 in the coming years.
The government started giving vouchers to children born in September 2002 to invest in their future; the money could be withdrawn once the child turned 18 years old.
Values in the savings accounts may have risen to over $1,000, and even more with parental contributions.
However, thousands of young people may be completely unaware of the existence of the savings accounts set up in their names.
Can you explain the concept of “child trust funds”?
The Labour government established Child Trust Funds as a way to help families put money away for their kids’ futures.
The goal was to help young adults prepare financially for adulthood by the time they turned 18, whether that be through college savings or emergency funds.
Beginning in the first year of a child’s life, the government deposits £250 into the tax-free account, and again at age seven.
A sum of $500 was provided to low-income families.
Members of the family and friends circle could also contribute to the account up to the maximum amount.
In January 2011, the coalition government severely modified the programme before ultimately abandoning it.
So, what’s going to happen?
Those who were given Child Trust Fund vouchers as babies are finally reaching the age where they can cash them in.
H.M. Revenue and Customs estimates that 55,000 people turn 18 every month, leading to a total of 6.3 million people who will be eligible to withdraw their funds or keep them in savings (HMRC).
Actually, teenagers can take charge of their account at age 16, though they can’t make withdrawals until they turn 18.
If you do nothing with your Child Trust Fund, the service provider will transfer the money to an Individual Savings Account, which is also tax-free.
Simply put, how much do they cost?
This capital is typically found in accounts where it is invested in stocks. Both the value of the government voucher and the value of the stock are contingent on the performance of the company over time.
Experts in the field of accounting have determined that the fund could grow to as much as £70,000 if both parents contribute the maximum allowed amount and interest is earned on the investments.
For many people, the more likely scenario is that the money has simply accumulated in accounts without being touched. Those who are born into low-income families will still likely receive a windfall of around £1,500.
Also Read: Find a Child Trust Fund
When will we get paid?
Within a year of their child’s birth, parents were encouraged to open a Child Trust Fund with any of several financial institutions. Parents or guardians created roughly 4.5 million of these accounts.
The Share Foundation, a nonprofit organisation that helps people locate lost money, is in charge of the accounts set up by local authorities for children in care.
When the 1.8 million parents involved did nothing, the UK’s tax agency went ahead and opened the accounts.
In potentially thousands of cases, HMRC admits that young people are unaware that they have such savings.
John Glen, the Treasury’s economic secretary, has said, “We want to make sure that all young people can access the money which has been set aside for them as they turn 18 so that they can invest in their future and continue a savings habit.”
You can easily find your service provider online if you have any questions about whether or not you have an account with them or the location of your account.
When accessed, a plethora of choices awaits teenagers.
Adrian Lowcock, head of personal investing at financial firm Willis Owen, said, “Getting a windfall like this can be daunting.”
“There are a variety of viable options to think about when deciding how to spend the money. Some people might want to use it to buy things right away, while others might prefer to save or invest it.
Also Read: Child Trust Fund