The Importance of Child Trust Funds

27 June 2023

WHAT IS A CHILD TRUST FUND?

A child trust fund is a long-term savings and investment account, designed to encourage parents to save for their children’s future and give them a solid financial head start as they enter adulthood.

CHILD TRUST FUND SCRAPPED

The child trust fund (referred to as a ‘baby bond’) was introduced by the government in 2005 and was available to all eligible children until 2011. The government contributed a one-off payment of £250 for children born on or after 1st August 2010 and £500 for those born between 1st September 2002 and 31st July 2010.

It was then replaced by the Junior ISA (JISA) scheme.

For children who had a child trust fund account, they can continue to save into it or transfer it to a JISA, providing a significant financial boost for young adults, whether it’s needed to pay a deposit on a house, further education costs, or simply to start their own savings plan.

Misplaced a child trust fund? Find out how to track it down here.

GROWING A CHILD TRUST FUND

Anyone can still add a total of up to £9,000 a year to the Government contribution child trust fund account. The contribution year starts on the child’s birthday.

Money in the account can only be accessed when the child turns 18, then it’s officially their money, but they can choose to manage it from 16 years old if they wish to.

Savings in a child trust fund are free from both Capital Gains Tax and Income Tax, but transferring to a Junior ISA could bring a better return, so long as the provider accepts transfers in from CTFs. Fees may apply too, so it’s always worth checking these.

Junior ISAs present many investment choices, offering a wide range of funds, shares and other investments. What you opt for will depend on how much risk you’re willing to accept.

INVESTING IN YOUR CHILD’S FUTURE

Child trust funds and Junior ISAs aren’t the only option available if you want to save for the future of your children.

You might be deciding to take a more pro-active approach to your child’s future finances – and perhaps your own.

 

GET ADVICE ON CHILD TRUST FUNDS

 

An important note: the value of investments can go up and down, so you may not get back what you invest, plus, tax treatment depends on individual circumstances and tax rules may change in the future. Content correct at time of publishing.

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