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Find out how the scrapped CTF can live on…

Find out how the scrapped CTF can live on…

Category: Savings

Updated: 27/05/2010
First Published: 27/05/2010

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 It is now over 6 months old so the content may be out of date.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 child trust fund (CTF) might have been scrapped but for those already with an account open, it is set to live on.

Although confusion initially surrounded what will happen to the CTFs which have already been opened, details are emerging as to what the future holds.

The government has confirmed that existing accounts are set to remain as they are.

This means that any CTFs which are already open will remain tax free, while parents, friends and family will still be able to top them up to the tune of £1,200 per year.

Parents who receive a CTF voucher before 1 January 2011 will also still be able to invest this money and benefit from the annual allowance.

However, as to what will happen to the rates available on cash CTFs, the future is unlikely to be bright.

Without the guarantee of a government contribution, providers could lose interest in the accounts, meaning the interest paid on the accounts is likely to drop quickly too.

Meanwhile CTFs invested in stocks and shares could go either way – it is anyone's guess what the markets are likely to do next.

New parents currently receive £250 from the government to get the CTF account started, with a second £250 being paid by the state when the child reaches seven.

Children from low income families receive the higher amount of £500 at each stage.

Parents, family and friends are all welcome to contribute to the accounts, up to a combined maximum total of £1,200 each year, with no tax being paid on any gains made.

The main restriction on the accounts is that any investments made have to remain untouched until the child turns 18.

However, despite enjoying considerable success in encouraging parents to save, from August this year, initial contributions will be cut to £50 for better off families and to £100 for the worse off, and the additional payment at age seven halted immediately.

All government contributions into CTFs will then become a thing of the past from 1 January next year.

Go to our best selling savings accounts chart to see the best savings rates that are available.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.