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Child trust funds: The Facts

Setting up a trust fund for a child can be a great way to ensure they have the best possible start to their professional life by giving them some financial security. Trust funds are normally set up when the child is quite young and cannot be accessed until they turn 18 or 21, depending upon the terms of the fund. There are a variety of different funds available so it is important to understand what exactly is entailed before opening one.

Choosing a fund

Types of Fund There are three basic types of child trust fund. Savings funds works in a very similar way to a savings account. Money is paid in and interest is accumulated over the length of the fund. Stakeholder trust funds invest the money put into the trust fund, usually into a range of safe company shares. Dividends and other many earned from the shares boosts the account, but a management charge will be incurred. Shareholder funds are similar to stakeholder funds, but are normally invested in a greater variety of shares usually chosen by the guardian in charge of the fund. Location Most high street banks offer some variety of trust account, although there are also some specialist financial institutions dealing exclusively in this area. The choice is an entirely personal one. The only key difference comes with savings funds where different interest rates may be charged by different banks. Paying In Trust accounts normally come with some strict rules regarding paying money in. This can involve minimum or maximum amounts to be paid in each month and rules on who can pay money in. Some accounts will only allow one person to pay money in so relatives will have to pay money into the fund though that person.

Which is best?

The key question to answer here is which of these accounts is best, but there is no simple answer. Savings funds are by far the safest and easiest to understand. Choose the fund with the best interest rate, pay money in and it will accumulate. Stakeholder funds are more risky, but are managed by professionals and are dealt with in a way to ensure there are gains in the fund. There is a management charge to be considered in this case. Shareholder accounts are by far the most risky and should only be set up by people who understand the workings of the stockmarket and have a background in investments. In the case of stake and share accounts it is important to remember the stock exchange can go both ways, so there is a possibility of losing everything, but there could also be much more significant gains.

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