Our recommended Child Trust Funds (CTFs) either have low-costs or more investment choice or both.
Scores of Child Trust Funds are just ‘me-too’ plans with no must-have features and plenty of disadvantages. Here’s why our selected CTF plans offer much better potential returns than the copycat Child Trust Fund products.
Lower costs are more important to your Child Trust Fund returns than you might think. Most people can’t do compound interest in their heads, so they don’t think there’s that much difference between the standard CTF with charges of 1.5% a year and a top-value plan with charges of just 0.5% a year.
But if we assume both CTF plans secure the same rate of growth in their investments before charges of 7% a year, and that you save the maximum £100 per month for 18 years, then the low-charge plan will deliver a payout of £40,883 compared with the higher-charge plan’s £36,767.
Investment choice in CTFs is essential
Better investments are also important. Most share-investing CTFs use an index-tracker fund, but if you really want one of these then you can get it a lot more cheaply than you do with a high street CTF. Get free information on leading CTF plans here.
All our selected plans are share-investing ones since the evidence is overwhelmingly in their favour for long-term savings plans. If you assume that over the next 18 years you will get the same average rate of return as has applied for the last century, investing £100 a month in a share-based CTF will deliver £35,000. That compares with just £24,000 for a cash deposit plan. Both those figures are in inflation-adjusted terms, i.e. they show real spending power.
Child Trust Funds: choose from the best plans
F&C Child Trust Fund has very low charges
The F&C Child Trust Fund has higher minimums than most (£100 lump sum, £25 per month) but amazingly low charges.
Buy the Foreign & Colonial Investment Trust (FCIT) and you’ll pay just 0.51% a year - that’s the cost of the investment alone, because there are no plan charges.
Why is the F&C Investment Trust a good choice? Put simply, because it’s a huge £2 billion fund with over a century of history and has money invested all across the world. But F&C runs 13 other trusts you can choose if you prefer (though all have higher charges).
Family Assurance CTF offers simplicity
Family Assurance is the biggest CTF provider with over half a million signed up. Its plan is simple and you get New Star - one of the best all-round investment management groups - looking after the money saved in the plan.
The Family Assurance Child Trust Fund plan is ‘lifestyled’, which means that from age 13 to 18 the money is progressively switched from shares to safer fixed-interest investments. If you are not going to keep an eye on the plan and makes those decisions yourself, a lifestyled plan is the way to avoid the plan being sandbagged by a last-minute stock market slump.
Selftrade CTF
Online stockbroker Selftrade has no annual plan fee; instead it charges a flat £12.50 for each purchase of shares. But there’s no initial charge on purchases of funds and there are dozens to choose from in its fund supermarket.
The Selftrade Child Trust Fund plan gives you the cheapest deal on funds because you can wait until you have £1,000 in the plan then buy an index-tracking Exchange Traded Fund that mimics the stock market average and costs just 0.4% a year. Or you could buy investment trusts like Foreign & Colonial.
Engage Mutual Child Trust Fund
Engage use has a slightly more sophisticated form of lifestyling. The Engage CTF has two funds, a growth fund and an income fund. Between the ages of 13 and 18 the money is progressively switched to the income fund, which is invested in bonds and cash and should therefore avoid any nasties affecting the stock market.
The Share Centre Child Trust Fund
The Share Centre CTF plan is slightly complex, but worth it if you plan to take an active interest in the fund and use it to educate your child in money management. There’s a 0.5% a year charge on the value of the fund, but then you can buy four mainstream investment funds with no initial charges, or a raft of other funds with modest initial charges.
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You can also, as with Selftrade’s plan, wait until contributions have built up and then buy shares in investment trusts or, if you’re adventurous, in other companies. Use one of our selected plans and I believe you will do better than with the ‘plain vanilla’ index-tracker CTF offered by most plan providers, and far better than any cash deposit CTF.
Child Trust Funds: choose from the best plans
Important risk warning - please read
The value of your investment and the income from it can go down as well as up and you may not get back a significant proportion of your investment. Past performance is not an indication of future performance. If you are in any doubt as to the suitability of an investment, you should seek independent financial advice.
