How To Get The Best From Child Trust Fund

Articles

How To Get The Best From Child Trust Fund

The question, how to get the best from child trust fund, is an important one for all parents.

But let's just start at the beginning. What is the Child Trust Fund?

It's a scheme initiated by the Government to give every child a better financial start in their adult lives. Thus, it was decreed that all children born since September, 2002, will get a £250 'free' money voucher from the Government with which to create a Child Trust Fund. A further voucher worth £250 is sent on the child's seventh birthday and this will also go to the created Child Trust Fund.

The money cannot be accessed until the child comes of age - at 18 - (unless the child dies, when it goes to the parents, or guardian), but can then be spent as they wish once they have access to the lump sum of money. And for those households in which the total household income is less than £16,040 in the financial year 2008 to 2009, then the actual amount the child gets on both occasions is £500, not £250. And for the kids born after September 2002, but before the scheme started in April 2005, then they should also get back-dated interest payments.

That's the basics of the Child Trust Fund.

The trick is of course, that the parent (until the child is 16) has the choice of where the Child Trust Fund should be opened and held, and this choice can make the world of difference, like any investment vehicle, between a decent return and a poor return. And for those parents who don't make the decision themselves within a year - and don't effectively 'cash' their child's voucher - then it will be done for them. And this won't necessarily get that child the best return.

So when choosing a Child Trust Fund, some care has to be taken. And bear in mind that you can 'top-up' your child's account to the tune of £1,200 a year. And the fund does not qualify for income and capital gains tax, but its best to get some advice, as inheritance tax rules do apply.

You need to choose the best type of account, as this will get you the highest rate of return. There are two main types of account from which to choose: savings and investment. With a savings type Child Trust Fund, you get the lump sum back (guaranteed), plus whatever interest that lump has earnt (bearing in mind what interest rate is offered throughout the period of the savings). With an investment type Child Trust Fund, you effectively allow the element of risk into the equation, as this type of fund will invest the monies on the stock marketing which means you could either end up with huge returns, or, potentially, nothing at all (although that's unlikely).

So, when you think to yourself, how to get the best from child trust fund, give it some serious thought, as your kids will want to know you did your best!