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Stakeholder CTFs overtake cash alternative

Stakeholder CTFs overtake cash alternative

Category: Investments

Updated: 12/05/2010
First Published: 12/05/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
The value of the average stakeholder Child Trust Funds (CTF) has edged past those of cash CTFs over the five years since the scheme was launched, research has revealed.

The performance of stakeholder CTFs, which are linked to the performance of the stock market, has varied since the products were launched, with negative growth recorded in 2007/08 and 2008/09.

However, in the last tax year, the average stakeholder CTF has enjoyed growth of 40.1%. By contrast, cash CTFs have endured a difficult 12 months as a result of the low interest rate environment.

As a result, by the end of the 2009/10 tax year, the average stakeholder CTF would have delivered 27.9% growth, meaning the original £250 investment would be worth £319.

This just beats the 27.4% growth that cash CTFs have achieved over the last five years, with a £250 voucher now worth £318.

Parents can currently choose from three CTF options: two of which offer exposure to stocks and shares.

A stakeholder CTF must have a lifestyled equity option and charges limited to no more than 1.5% a year; whilst a non-stakeholder CTF provides a wider investment choice but is not restricted with regards to the charges it can levy.

Stakeholder CTFs are the Government's preferred choice and is the type of account which will automatically be opened on a child's behalf, should the initial voucher not be used within a year of its issue.

For those parents keen to avoid the vagaries of the stock markets, cash CTFs are also available, on which growth will depend on the interest rates being paid.

"The paucity of interest rates, in tandem with the stock market recovery, means that stakeholder CTFs are now neck and neck with their cash rivals in terms of the returns each have delivered since the initiative was introduced," commented Richard Eagling, editor of Investment Life & Pensions Moneyfacts.

"Given that funds in a CTF have to remain untouched for 18 years, it makes sense for new parents to consider the merits of investing in stocks and shares, either via a stakeholder or non-stakeholder CTF.

"However, in light of the coalition deal between the Conservatives and the Liberal Democrats it remains a distinct possibility that the CTF might not be around, in its present form at least, to see its sixth birthday."

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