Child Trust Fund

Child trust funds were drafted in so that every child born since September of 2002 would have access to a savings facility where tax doesn’t play a factor. In many ways, child trust funds are similar to the child ISAs on the market. They do away with unnecessary tax outgoings and produce tidy interest to encourage young savers.

The most popular form of child trust fund is the standard savings account package. But that’s not to say that it’s the only option. You’ll also find a stakeholder account for children. As per the typical stakeholder account, this package involves money being invested in to a line of different companies on the stock market. You don’t have to worry too much since the investments are calculated risks - certainly not volatile investments.

With a stakeholder child trust fund, you’re placing a bit more risk in to the investment. The long term reward can be greater, and the stock market has proven to be top dog as far as return on investments are concerned. But if there’s a stock market crash during the account term, things can become slightly problematic. Thankfully, measures are in place to counter this and when the child turns 13, the trust fund will begin to work the shares in to readily available cash.

You’ll also find many shares accounts on the market. These are similar to stakeholder trust funds, except the responsibility is greater on your own shoulders to make wise investments.

Of course, most parents prefer to leave the stock market to their own private business ventures. And as such, the simplified savings account is the most popular choice of the child trust funds.

When a baby is born, the government will make a £250 payment in Child Trust Fund vouchers. This sum could potentially be raised to £500 if the household income is extremely low.

It remains to be seen, but the government has also vowed to top-up the vouchers with an extra £250 when the child reaches seven. This makes for a cosy launch pad to open an account and get the savings ball rolling.

So what are the restrictions? Well, on an annual basis, you can only make a maximum contribution of £1,200 to the savings account. Money can be paid in by parents, relatives, friends and optimistically perhaps - even the children themselves!

£1,200 isn’t a huge sum to save yearly, it’s the equivalent of £100 per month. But considering the money will only become available to your son or daughter at the age of 18, that leaves plenty of time for an impressive accumulation of cash.

When the child turns 18, the account becomes rightfully theirs. They can draw out what they want and use it at their own digression. While this might send the shivers up and down a few parents’ spines, it’s certainly a nice fall-back in a world where university debts are becoming an increasing pain in the backside.

If you’re looking for a secure tax-free wrapper which your children won’t be able to touch until they genuinely need the money, you can’t do much worse than a child trust fund.