Share / Stakeholder Child Trust Fund
Child Trust Funds are tax-free savings accounts, specifically designed for enable young adults of the future to begin their lives with some financial security. Introduced on the 6 April 2005, the Child Trust Fund, or CTF, is designed to encourage parents, and other family members, to save for their child's future. The government will contribute five hundred pounds to the account: two hundred and fifty pounds when the account is opened and two hundred and fifty pounds around the child's seventh birthday. A maximum of one thousand two hundred pounds can be invested in the Child Trust Fund each year. When the child reaches eighteen they are entitled to withdraw the money in the fund or re-invest it: only the child in question is able to access the money. Like most savings accounts, there are different variations available each with different levels of risk. There are two stock market invested Child Trust Fund options: the share CTF and the stakeholder CTF.
Share CTFs invest the fund in company shares: when the value of these shares increases, so does the value of the fund. However, if the shares in which the fund is invested do badly, the value of the fund will decrease: for this reason the share CTF is seen as a risky option. In fact, considering the eighteen year investment period, it is likely that a share CTF will produce reasonable returns. Although share prices will fall at times, they will also increase at others; on average, shares will increase in value after eighteen years, just as prices will increase steadily over this period. As a result, a share CTF is not really a high risk option, but it is important to remember that past performance of shares cannot be taken as a guarantee of their future performance.
A stakeholder CTF also invests the fund in company shares. Just as with share CTFs, if the shares increase in value over time then the value of the fund will increase, and if the shares fall in value the value of the fund will decrease. There is no guarantee that the value of the fund will increase, and you could end up losing money. However, stakeholder CTFs operate according to strict government guidelines. The way in which the fund is invested is monitored to ensure that no unreasonable risks are taken. At the beginning of the investment period, the fund might be invested in riskier shares to maximise potential returns, but as the child approaches their eighteenth birthday the fund is invested more securely, for example in a regular savings account. There is also a limit on the amount that the account provider can charge for administration of the fund. Independent experts supervise the management of stakeholder CTFs and ensure that the account providers are abiding by the necessary rules. If you receive the initial two hundred and fifty pound voucher from the government and do not open a CTF account, the money will automatically be used to open a stakeholder CTF in the child's name once the voucher has expired.
