Contributing to a Child Trust Fund
In its first Budget the coalition government announced the gradual phasing out of government payments into Child Trust Funds. These changes will require an Act of Parliament. Until such a time as that Act is passed, the information here remains valid.
The Child Trust Fund (CTF) was established in 2002 with the intention of ensuring that children are given a financial springboard when they reach adulthood. The accounts are available to all those born after 1st September 2002 for whom Child Benefit is being claimed, and will be credited with a payment of £250 by the government automatically on opening. Children from lower income families may be eligible for a further payment in the future.
Account TypesOnce the Child Trust Fund account has been opened, parents and grandparents are encouraged to contribute as regularly as they can in order to ensure that the final sum, which will become the legal property of the child when they reach their 18th birthday, is as substantial as possible. Clearly, the frequency with which family may be able to contribute will depend on individual circumstances, as will the amount that can be contributed.
There are, however, a number of different types of account, each of which has different rules regarding contributions. As such, it should be possible to find an account that suits your circumstances, even if you wish to donate very small amounts or very infrequently.
It is important to remember that there is an upper limit for annual donations. Contributions to any single CTF account may not exceed £1,200 in any single year. For these purposes, the year runs from the child's birthday to the day preceding the child's birthday in the following calendar year.
The only exception to this is the year of the child's birth; in these instances, the year begins on the day of opening and ends on the day before the child's first birthday. As such, it is important that an account is opened promptly to ensure that the full contribution entitlement is made use of.
Stakeholder and Non-StakeholderAs has been mentioned, the means by which contributions can be made vary, depending upon the terms and type of the account. Stakeholder accounts are perhaps the most accessible, as they must allow contributions of as little as £10 - although many will accept contributions of even less. This should be checked with the individual account provider.
Furthermore, all stakeholder accounts must accept contributions by cheque, standing order, bank transfer, or direct debit. If you choose another type of account, the minimum contribution and method of contribution may be different. There are no overarching rules concerning these factors for non-stakeholder accounts. As such, it is important to do some research in order to find the best account for your family's circumstances.
There are a number of other factors to consider when choosing an account; these are looked at in detail in articles elsewhere in this section.
It is important to remember that, regardless of the size of a contribution, every pound makes a difference over the course of the eighteen-year term of the account. As such, you should not be discouraged from contributing just because you cannot afford to give very much or very often. The favourable rates of growth available on many accounts will mean that any contribution, however small, has the potential to grow considerably.