Child Trust Funds
The Child Trust Fund was set up in 2002 as a method of encouraging parents to save for their children’s future.
The government would automatically send a £250 Child Trust Fund voucher to every baby born in the UK, which their parents had one year to invest into a Child Trust Fund of their choice. The theory was that parents investing that £250 would also set up a monthly savings contribution, which would grow into a nice lump sum by the time the child turned 18 and was able to access the money.
If the parents failed to set up a Child Trust Fund by the child’s first birthday, the money was automatically invested into an account on their behalf.
The Child Trust Fund was abolished for all babies born from 1 January 2011, with reduced vouchers of £50 being issued in the six months leading up to the scrapping. The Child Trust Fund has now been replaced by the Junior ISA, which will be launched on 1 November 2011.
The Child Trust Fund offers tax-free savings for children, in a similar way to the ISA platform does for adults. Parents and grandparents can save £1,200 a year tax-free into existing accounts, in the form of both Cash and Stocks and Shares Child Trust Funds.
The money is invested for 18 years until the child’s 18th birthday, and will grow each year if the investment is successful. The money is then released on the child’s 18th birthday, and can be used for things such as funding a new car purchase, contributing towards a house deposit, or paying for university.