What is a Child Trust Fund?

Saving for a child's upbringing and future is often the largest item of expenditure that a parent will make. Starting early helps you benefit from compound interest.

Parents will receive a £250 voucher upon birth of their child. If the child's household is receiving Child Tax Credit (CTC) with a household income below the CTC income limit (currently £16,040 for 2009/2010) the parents will receive an additional £250, i.e. a voucher of £500 in total.

The voucher must then be invested in an approved Child Trust Fund (CTF) investment within a year (or the Inland Revenue will automatically invest for parents). It is expected that the Government will also contribute a further £250 (£500 if household income below CTC income limit) when the child is age seven.

A further contribution of up to £1,200 p.a. may also be invested for the child by relatives or friends. CTF investments are likely to include cash savings accounts and stockmarket funds.

The CTF investment must then remain in place until the child is 18, at which point the child can take the money should they wish.

Types of Investment

You can choose to invest in a stakeholder account, cash or stocks and shares. Decide which best suits you.

Things to consider

Saving on behalf of children will often be the largest single item of expenditure for parents. If you want to make provision for these costs the first rule is to start as soon as possible, so as to benefit from the power of compound interest