A guide to Child Trust Fund accounts

Although the UK government no longer contributes to child trust funds, existing funds continue to earn income tax-free. Funds may be transferred from one financial institution to another, and parents should look for the best deal. This article acts as a guide to child trust fund accounts.

Contributions to Child Trust Funds

Child Trust Funds were introduced by the UK government with the aim of providing children with savings that would be made available to them at the age of eighteen. The government provided vouchers to parents on the birth of a child, and these could be used to open a Child Trust Fund. A further government voucher would be issued on the child’s seventh birthday. Parents or other persons could also make contributions into the fund, up to a maximum of £1,200 per year, and the amounts contributed could accumulate tax-free in the fund. The amount in the Child Trust Fund could not be used until the child reached the age of eighteen. After the 2010 election, the UK government made a decision to stop contributing to Child Trust Funds. The last vouchers were issued by the UK government towards the end of 2010, and no new funds could be opened. It is however still possible for parents or other people to contribute to existing funds up to the annual maximum. Income earned by the existing funds continues to be tax-free. About five million Child Trust Funds had been set up with various financial providers, and these funds may continue to maturity, though without further government contributions.

Transferring Child Trust Funds

The existing Child Trust Funds are in the form of interest-bearing cash deposits, shares or life policies. It is still possible to transfer an existing Child Trust Fund from one provider to another. Parents should look for the best Child Trust Fund available, perhaps by consulting a savings account comparison website, and consider transferring the fund. From the age of sixteen, the child may take investment decisions in relation to the Child Trust Fund, and can choose among trust fund accounts. When the child reaches the age of eighteen and the trust fund matures, one option is to roll over the funds into an Individual Savings Account (ISA).

Alternatives to Child Trust Funds

There are some attractive alternatives to putting further money into Child Trust Funds. National Savings and Investments (NS&I) offers some tax-free investments that can be made by anyone over the age of seven. From November 2011, it will be possible for those aged under 18, who do not have a Child Trust Fund to open a Junior Individual Savings Account (Junior ISA) which allows for tax-free saving. Contributions may be made into a Junior ISA up to £3,600 per year.