According to reports this week, more than £9 billion is “languishing” in child trust fund accounts, and many people would be better off reinvesting the money elsewhere.
HM Revenue and Customs released official data on Tuesday revealing that there were just over 6.1 million CTF accounts, with an average balance of £1,500. The most recent month for which data is available is April of last year.
During the 12 months beginning in April 2019 and ending in April 2020, the vast majority of accounts (over 5.1 million) did not receive any deposits. This indicates that some children may have been overlooked, and that many young people may be unaware that they are entitled to a share of a cash prize.
In case you have forgotten about your child’s CTF account, now is a good time to see how it is doing.
Baby bonds, also known as child trust funds, were introduced in 2005 by the Labour government as a form of long-term, tax-free savings for children up to the age of 18.
Between September 1, 2002 and January 2, 2011, the state of California gave one thousand dollars to each child born. Average recipients received £250, while those from the poorest families received £500. Additional government payments of £250 or £500 were made to hundreds of thousands of children.
Although CTFs were abolished at the end of 2010, those that were already in place were allowed to continue, and beneficiaries’ loved ones could continue contributing up to £9,000 annually.
You could choose between a traditional savings account and one that invested primarily in stocks and shares.
Now that the first “child trust fund babies” are 18 years old, they can withdraw their savings or continue investing them as they see fit. In any case, the youngest of them is only 10, so there are still plenty of years to enjoy.
There are several paths open to you if you’re a CTF holder with a minor child. You can, for instance, continue on as is or switch to a different CTF service.
Find out how much interest you’re earning on any cash CTFs you may have. The Child Trust Fund Issue 4 from the Skipton Building Society accepts transfers and offers a paltry 2% interest. The only ways to access the funds are at a branch or by mail.
Money held in a CTF can be moved to a Junior Isa as of 2015, and many people should do so because the return on investment is typically higher in the latter.
Sarah Coles, a personal finance analyst at the investment firm Hargreaves Lansdown, notes that while the two types of accounts share many similarities, Junior Isas have several advantages.
highest paying dollars The Dudley Building Society’s Junior Isa account offers 2.5% on balances of £2,500 or more (it pays 1.4% on balances below that) and the Coventry Building Society’s Junior Cash Isa (2) offers 2.25% on balances of just £1. There is a 2.5% yielding account at the Bath Building Society, but only certain people are eligible to open it.
If you have an investment CTF, says Coles, “you may be paying over the odds in charges,” as investment Junior Isas typically have lower fees.
Furthermore, many Junior Isas now offer a much wider variety of funds, shares, and other investments to choose from than were previously available through CTFs.
Whether you want assistance or are content to go it alone, your level of risk tolerance, and so on will all play significant roles. Companies like Hargreaves Lansdown and AJ Bell, which accept transfers into Junior Isas, could be a good starting point for those interested in starting one.
The Hargreaves Lansdown account allows you to select investments for your child from among more than 3,000 available funds, UK and international shares, investment trusts, bonds, and exchange-traded funds, with some suggested choices available online.
As with AJ Bell, you can get investment advice from the company’s experts and choose from more than 2,000 funds, shares, and other products.
With both, you can start investing with as little as £25 per month.
The Big Exchange, an investment firm co-founded by the Big Issue, introduced a Junior Isa in December that only invests in funds that are actively improving the environment and society. The minimum monthly investment is only £25 and the company offers 46 different funds to choose from. The Big Exchange is currently recommending that customers move their CTF into a Junior Isa with their current financial services provider before moving it to the Big Exchange’s product.