What is a CTF?
All children born in the UK after September 2002 for which the parents claim Child Benefit receive a voucher for £250 (or £500 if parents are in receipt of certain state benefits), which is invested in a Child Trust Fund on their behalf. The cash value of the plan is paid over to the child at age 18. Nobody else is entitled to the money.
Parents may choose a CTF for their child; if they don’t, their child’s voucher will be assigned to a fund chosen randomly from a list of CTF providers. Parents, relatives and others may contribute additional funds to the CTF up to a maximum of £1,200 per year. Full details of the CTF
Stakeholder or cash
The two main types of CTF are Cash and Stakeholder. Cash plans simply pay a variable rate of interest (free of tax). Stakeholder plans invest in index tracker funds which replicate the average performance of the UK stock market.
Over the long term (like 18 years) the stock market has always generated far higher returns than cash, so the Stakeholder plan is a better choice than Cash.
Charges
Cash plans have no charges since the plan provider’s profit is in the interest rate. Stakeholder plans levy charges of 1.5% a year.
Why aren’t your Best Buys stakeholders?
Our Best Buy plans have either lower charges than stakeholder plans (0.5% instead of 1.5% a year) or better investment choices. It may be worth paying more than 1.5% a year to invest in funds if they produce higher returns than the stock market average. If you plan to put in the maximum £1,200 a year you can also consider a stockbroker plan and buy shares- you can buy investment trusts, thus getting a wide spread of investments while paying under 1% a year in charges.
Compare our Child Trust Funds here.
