Child Trust Funds: The Basics

Terry Till

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Recently our son and daughter in law were blessed with the birth of our grand daughter Maisy Leigh, a wonderful baby who seems to have a smile on her face at all times and is a sheer delight to us all. Like all proud grand parents we only want to ensure her safety in life and provide for her future and it seems that the UK government share our concern and have now given a helping hand in the form of the Childs Trust Fund.

As with all these type of savings and benefits at first glance the paper work may seem confusing so I decided to give a brief and basic overview as to how it will benefit your child or grandchild and how you go about setting up such a Childs Trust Fund.

At the time of writing this article any child that is born within the UK will be entitled to a voucher to the value of £250, which has to be invested in a Childs Trust Fund with a view to providing a nest egg that will become available on the child’s 18th birthday.

The account also gives provision for you to invest up to an additional £1200 per year and is free from personal tax under the current rules.

There are many well-known banks and building societies that are available and provide Child Trust Fund accounts and these accounts can be divided into three types of risk factor. I like to access these three types of account as low, medium and high risk growth potential and the choice of which one you choose is purely an individuals choice, bearing in mind that the medium and high risk savings accounts involve investment in shares and of course these can go down in value as well as increasing over the course of 18 years.

The low risk account is the Non-stakeholder savings account which is similar to a bank or building society savings account and these pay interest on the money saved.

Medium risk account in my opinion is the Stakeholders share account, which invests in shares in companies however the Government has made special rules for these accounts to reduce the risk of share investment.

Third type of account is the Non-stakeholder shares account, which invests in shares but does not have the same rules to reduce risk as the stakeholder account.

Which way you decide to invest your child’s £250 voucher is important and all options I feel should be considered however personally I feel that perhaps the safest one is possibly the medium risk account that gives both security with the possibility of good long term growth.

This is a very basic overview of the Child Trust Fund and how you can invest your initial Child Trust Fund voucher, I would always advise that you give great thought to this matter before you make any decisions and it is also well advised to seek expert advice from an independent financial advisor.

Copyright 2006 Terry Till

Find out more about Child Trust Funds and visit Maisy Leigh's photo album.

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