Children turning 18 may have hundreds of pounds in savings that they unaware of as their Child Trust Funds (CTF) mature and they can finally access the money in Government-launched accounts.
In fact, every child born between 1 September 2002 and 2 January 2011 was eligible for a CTF and on the opening of each account the Government initially deposited a minimum of £250 to activate the account. Data released by the Government in June found that over 60 million CTFs are in existence and there is an average of £1,500 held in each one.
CTFs were a Government initiative to encourage parents and guardians to save towards their children’s future. After the Government’s initial deposit, further additions of up to £9,000 each year could be added to the account. When setting up CTFs, there was the choice between two types of accounts – a cash savings account and ones that invested in stocks and shares. The account matures on the child’s 18th birthday, after which they can take full control of the account and withdraw funds.
Although it can be tempting to spend the money saved in CTF, it may be better to use the money to continue saving for the future, for example towards a house deposit.
Those who want to continue saving the money will have to withdraw or transfer the money into another savings account or continue investing.
Putting money into a savings account is likely to be the most straightforward option. Savers will just have to choose which type of account they want to open and then withdraw the money from their CTF and into the new savings account. When looking at which type of account to open, savers need to consider whether they want to continue making savings deposits and if they might need to access their money.
An easy access savings account is likely to be the best option for those who want to continue saving into the account and may want to make withdrawals. Although it is common for easy access account to allow savers to continue saving into the account, many, especially those offering the most competitive rates, have restrictions on how many or when withdrawals can be made. As well as this, easy access accounts usually offer the lowest saving rates so savers looking to earn a better rate of interest may want to consider another type of account.
For those who do not want to make further additions to their savings and will not need to access their money, a fixed rate bond could be the best option. These savings accounts require savers to lock their money into the account for a pre-determined fixed rate period. In return for not being able to access their money, these accounts usually offer the most competitive saving rates with the longer the money held in the account the better the savings rate offered.
Whether savers choose an easy access savings account or a fixed rate bond, it is important to consider the fact that unlike CTF which are tax-free, savings in these types of savings accounts are taxable. Basic rate taxpayers can earn up to £1,000 in interest each year without paying tax and, with savings interest rates remaining low, for most savers will mean they do not need to worry about paying tax. For those who are concerned about paying tax an ISA, which allows up to £20,000 to be deposited tax-free each tax year, may be a better option. Just as with savings accounts, ISAs also offer easy access ISAs, which are similar to easy access savings accounts in that they allow further deposits to be made and withdrawals are normally allowed, although again some may have restrictions. As well as, fixed rate ISAs, which like fixed rate bonds, require savers to lock their money into the ISA for a fixed period of time.
Savers who are certain that they want to use the money in their CTF to help towards a house deposit may want to consider opening a Lifetime ISA (LISA). A LISA allows savers to deposit up to £4,000 each tax year, with the Government adding a 25% bonus each year on the money deposited during the previous 12-months. This means that for those able to save the total of £4,000 each year, they could receive a Government bonus of £1,000 per year, as well as benefiting from interest being added to their savings. The main drawback with LISAs is that the money saved can only be used for specific reasons, such as being used towards the house deposit on a first home. If money is withdrawn from a LISA for any other reason, the penalty incurred can result in not only wiping out the Government bonus but also some of the savings deposited into the account. For more information about these accounts read our guide on LISAs.
An alternative to putting money in a savings account could be to invest the funds from a CTF. For those with an investment CTF continuing to invest the money may seem a natural option, whereas for those switching from a cash CTF to investing the money it may be worthwhile to seek independent financial advice when deciding if this is the best option. As well as this, it is important to keep in mind that investing is a riskier option than depositing the money in savings account as there is no guarantee on a return in investment and investing can result in the investor losing all their money, including the initial deposit.
Those who are certain that investing is the right option, a stocks and shares ISA may be a good option as they allow up to £20,000 to be invested tax-free each tax year. For more information about investing in stocks and shares ISAs and the type of investments available visit our stock and shares ISA page.
For those who believe they, or their child, may have a CTF which they do not know about it is possible to find a lost account by filling out an online HM Revenue and Customs form.
Parents or guardians looking for their child’s CTF will need either:
Alternatively, those looking for their own CTF will need their National Insurance number.
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