What is a Child Trust Fund?
The Child Trust Fund scheme is an old savings scheme set up by the government. It was meant to help parents save for their children’s futures. A number of banks offered an account for the Child Trust Fund scheme, including:
- Natwest Child Trust Fund
- Halifax Child Trust Fund
- Nationwide Child Trust Fund
- One Family Child Trust Fund
- Foresters Child Trust Fund
Parents can still add money to existing accounts even though the scheme has now finished. These accounts will stay open until each child has turned 18.
The new Junior ISA replaced the Child Trust Fund scheme in 2011. ISA stands for Individual Savings Account. It works almost exactly the same way as the older Child Trust Fund accounts. Both are tax free savings accounts for your children. You can’t withdraw money from either account until their 18th birthday.
If you have a Child Trust Fund account, you can either keep it or switch it to a new Junior ISA. If you don’t have a Child Trust Fund account, you won’t be able to open one now. You should open a Junior ISA instead.
Below, we discuss everything to do with the Child Trust Fund scheme.
We also will talk you through the benefits of switching over to the new Junior ISA and how to find the best deal.
If you never opened a Child Trust Fund account, it is too late now. You will need to open a new Junior ISA. We explain everything you need to know for that too.
Are the two schemes different?
Although the Junior ISAs replaced the older Child Trust Fund in 2011, not much has changed.
Both accounts allow you to save up to £4,260 a year. Both options offer either a cash account or an investment/shares account. Also, both options lock away the savings until your child turns 18.
Most importantly, both options offer a tax-free way of saving for your child’s future. You don’t need to pay any tax on the money you put in or the profit the account makes from interest. They also won’t affect any benefits you receive.
With both schemes, if you invest the limit of £4,260 each year you could have some £65,000 saved by their 18th birthday.
Child Trust Fund accounts
Even though the scheme is now closed to new applications, you can add money to existing accounts. if you have an account you can continue to add money to it before your child’s 18th birthday.
Some websites estimate that there are over 700,000 forgotten accounts. Either parents lost the details or forgot about them. This could mean that millions of pounds are lying unclaimed in bank accounts in the UK.
You can check if you hold a Child Trust Fund account but have forgotten the details using this link:
You will need to register for a government gateway account or put in your login details if you already have one. HMRC will then get in touch within a few working days to tell you if you have a dormant account or not.
There are two types of account: cash or savings account or a shares/investment account. This is often called a ‘stakeholder’ account. It invests your money in different places rather than keeping it in an account.
Managing your Child Trust Fund account
Managing your Child Trust Fund account is all done through one ‘registered contact’. This is the one person who can oversee the account and change details before the child’s 18th birthday. It can be a parent, grandparent or guardian.
You have the responsibility to look after the account until the child’s 18th birthday.
You are the only person who can:
- Change account providers, i.e. from one bank to another.
- Change any personal details of the account, like the child’s address.
- Switch the account over from a cash savings account to a shares/investment account, or vice versa.
As the registered contact, you need to make sure you keep a hold of certain important information. You and the child will need this information later to access the account.
You need to keep:
- Information about the account and the provider the account is with.
- The account’s Unique Reference Number (UNR). If you can’t remember this, you will find it on any old statement from the account.
- All account statements. You can do this by putting them in a folder somewhere safe.
These will help the child eventually access the account and withdraw the money. It will also help you if you forget where the account is located or how much you have deposited in the past.
Paying in money to a Child Trust Fund account
Anyone can pay money into a Child Trust Fund account, it doesn’t have to just be the registered contact.
There is a limit of £4,260 in deposits per year. This ‘year’ starts on the child’s birthday and ends on the day before their next birthday. You can’t add more than this to any account during a year.
If you don’t reach the £4,260 limit one year, you can’t carry over any leftover amounts to the next year.
Stakeholder accounts accept deposits in standing orders, direct debits or cheque. You cannot deposit money through cash. The account provider decides how you can deposit money in the normal cash saving account. Check with the individual provider if you want to deposit money into that account. How they accept deposits might differ.
The government either gave you a £250 or £500 cash voucher when you opened the account. This amount depended on your family income at the time. This money doesn’t count towards the £4,260 limit. Any government payments into your child’s account don’t count towards the limit either.
Need to change the registered contact?
You can change the registered contact easily if something happens.
The registered contact needs to have parental responsibility of the child. Also both the old contact and new contact will need to agree to the change.
Parental responsibility means anyone with custody of the child.
Contact the account provider to change it over. They will be able to tell you what documents they need to make the change.
When the child turns 16 and 18
When the child reaches their 16th birthday, they have the option to take control of their account. This means that they become the registered contact for the account. You will no longer have permission to make any changes.
When the child reaches 18 years old, they take over the account and can withdraw the money.
Child Trust Fund accounts for children in care
If a child is in care, the local council may set up a Child Trust Fund account for them. A charity called the Share Foundation will act as the registered contact for them.
The Share Foundation will keep the child informed of their account balance. The child will also receive regular account statements.
They will continue to be the registered contact until the child turns 16 or 18. Or they will be the contact until someone takes responsibility for the child. This could be through adoption or returning to live with the birth parents.
Contact the Share Foundation if you’re taking over parental responsibility. They will help you make the change on the Child Trust Fund account. You’ll need to provide evidence of this, like a birth certificate or letter from the local council.
You can use the following contact details:
If your child is terminally ill or dies
If your child is terminally ill you can take money out of their Child Trust Fund account to spend. If they die, the money passes to whoever inherits the child’s estate. This is usually a parent.
Terminally ill in this case means not expecting to live for more than six months.
Only the registered contact can take money out of the account.
You’ll need to provide evidence that your child is terminally ill. You will need to show this evidence to HMRC and to the Child Trust Fund provider. HMRC can help you further, but most parents need to fill in a ‘terminal illness early access form’.
Should I switch the Child Trust Fund account over to a Junior ISA?
Deciding whether to switch your Child Trust Fund account to the new Junior ISA can be difficult. It does depend on what kind of Child Trust Fund account you have: cash or a stakeholder account.
If you have a cash Child Trust Fund account, you should almost definitely switch over. This is because Junior ISAs have higher interest rates than Child Trust Fund accounts. You’ll also find there’s more choice between providers. This is because the Child Trust Fund scheme has finished, so fewer places offer it.
If you have an investment or stakeholder Child Trust Fund the decision may be more difficult. When deciding to switch or not, you should compare a few things:
- What charges the Junior ISA and Child Trust Fund account include for managing your investments.
- How much the Child Trust Fund will charge you to switch to a Junior ISA. Sometimes they have transfer fees which can be so high that it won’t be worth your while.
Once you switch from a Child Trust Fund account to the new Junior ISA, you can’t switch back. Now that the Child Trust Fund scheme is closed, if you leave, you won’t be able to open a new one again. So, be sure you’re ready to move and you’ve made the right choice of Junior ISA provider.
If you decide to make the switch
You will need to check if the ISA provider accepts transfers from old Child Trust Fund accounts. Once you have done this and have decided, you’re ready to switch. It is unlikely they will say no, but it is worth double checking before you close your Child Trust Fund account.
If they allow transfers, then the provider will give you more information about how to switch.
Why don’t I just open a normal savings account for my child?
A common question about Child Trust Fund accounts and the newer Junior ISAs is:
“How do they compare to normal savings accounts?”
Once of the benefits of these saving schemes is that they’re tax free. So you can save a bit of money while saving for your child’s future.
Also, it locks the money away until they’re 18, meaning they or you are less likely to access it and spend it.
One of the downsides is that there’s a limit to how much you can pay into them. Obviously, normal savings accounts won’t have this saving limit. If you plan to put more than £4,260 in a year, then a normal savings account is for you.