The Government has introduced three main types of account, one based on cash investment and two on stock market-based growth.
Like us, the Government recognises that for growth over a period of 18 years stock market investment is, historically, the best. This is why we are offering only stock market-based accounts.
A Child Trust Fund invested in the stock market can give our kids a head start in adult life. But, best of all, anyone who cares about your child's future - grandparents, godparents, aunts, uncles or friends - can contribute.
Which children are eligible?
Basically, the Government is giving out vouchers for £250 to children born on or after 1st September 2002.
Because it's taken some time to introduce the new Funds, the initial £250 is increased for the first children to receive it, depending on birth date.
Families receiving Child Tax Credit will receive a further £250 later in the year.
If your child was born before the Government's cut-off date, don't worry. We may still be able to help with our Junior Investment Account. Click here for more details.
How much can be contributed?
Up to £1,200 a year (between the child's birthdays) can be invested into each child's CTF account.
Once contributed, money belongs to the child and cannot be returned to the donor. It is locked in (except as permitted by CTF regulations) until age 18 when the child decides how to use it.
You needn't worry if the total contributions in one year exceed the maximum allowable; we'll automatically put the excess into a separate 'holding' account ready to add to the CTF after your child's next birthday. Please note that money in the 'holding' account belongs to the child and is subject to the same restrictions on withdrawals as apply to the Child Trust Fund account. A liability to Income Tax may arise on money in a 'holding' account.
How do I open a Child Trust Fund account?
If you are the person claiming Child Benefit for the child, it's you who'll receive the information and voucher from the Government. You can then use your voucher to open an account. Technically, your child's CTF account can only be opened by a parent (or someone with 'parental responsibility'). Under the CTF regulations, this person becomes known as the 'registered contact'.
You can choose where to invest your voucher from a list of HM Revenue & Customs-authorised providers that includes The Share Centre. Naturally, as our favourite job is making the stock market accessible to everyone, we hope you'll choose us. In which case you just send us your voucher with a completed application form.
Like all CTF providers, we have to hold on to your application for 14 days (the 'cancellation period') before we can actually open your account. Once it's open, we can claim the value of your voucher from the Government and invest it for you.
Once your account is open, anyone is welcome to contribute regular savings or one-off sums to a limit of £1,200 per year (between each birthday) till the child reaches 18.
If you don't choose a provider for your child's Fund within 12 months, the HM Revenue & Customs will select one for you.
Once your account is up and running, you'll receive annual statements from us, around the time of your child's birthday. You can also view your child's Fund and its value through your own secure online account on this website.
How might it grow?
Let's say you invest a maximum of £100 per month over the full 18 years, and the return achieved is 7% per annum including re-invested income.
Your starting £250, plus the money you contribute over this time would total £21,850. (To this would be added the additional contribution the Government plans to make when your child is seven, although this has been excluded from the calculations.)
At 7% return per annum, the value of the CTF at age 18 would be £41,860 (before inflation), giving tax-free growth of over £30,000.
On the same basis, if you saved £50 per month, your child's Fund would be worth £21,300 (before inflation) at age 18.
Of course, these returns are for illustration only, the actual returns will vary as the value of investments, and the income from them, can go down as well as up. Also remember that past performance is no guarantee of future performance, but for growth over a period of 18 years, stock market investment is generally held to be the most appropriate. That's why the Government has set stock market investments as the basis for the Stakeholder account (with certain specific requirements to ensure that the risk profile remains appropriate).
What if I do nothing?
If you do nothing with your voucher, the HM Revenue & Customs will automatically choose a provider for you.
And if you don't add to your CTF, the HM Revenue & Customs calculates that if you simply invest the £250 initial sum and it grows by 7% per annum over the 18 years, then it would be worth £456, after taking into account an inflation rate of 2.5%.
(These figures are taken from the HM Revenue & Customs' 'Detailed Proposal for the Child Trust Fund' released 28/10/03. The 7% growth rate is an illustration only and actual returns will vary.)
In other words, to really make the most of your child's Fund, you should take maximum advantage of the opportunity to add up to £1,200 a year.
What are the tax breaks?
As with any other stock market investment, dividends are taxed at source with the Child Trust Fund, but there's no Capital Gains Tax and no further income tax to pay on your Child Trust Fund.
What's more, unlike some ways of saving for your child, there's no additional tax liability for parents when they make contributions to their child's CTF.
What if I have more questions?
We're here to give you all the information, and free advice you need to help your child share in the wealth of the stock market.
If there's anything you feel we've left unanswered, or if you have any questions about completing your application, please call us on 01296 41 45 41 and we'll be happy to help. Lines are open from 08:00 to 18:00 Monday to Friday.
Once your account is up and running we'll confirm receipt of your initial Government contribution and provide everything you need to help you monitor and manage your child's Fund.
