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Wednesday, 3 October 2023

Help with choosing a Child Trust Fund account

There are three main types of Child Trust Fund (CTF) accounts. These accounts can be Sharia or ethical too. Find out which type of account is right for you and your child.

Stakeholder accounts

Stakeholder accounts have to follow government rules to help protect your child's money. These include:

  • investing the money in shares and bonds across a number of companies rather than just one
  • automatically moving the money to lower-risk investments once your child is 13

This helps to reduce the risk of you losing money if one of the companies you invest in performs badly. It also means your child's money is safer as they approach 18 as what they have earned up to that point is protected.

All CTF providers offer stakeholder accounts. This is also the type of account that HM Revenue & Customs will open for you if you don't use your voucher by its expiry date.

Stakeholder accounts can only charge up to a maximum of £1.50 a year for every £100 in the account. Other types of accounts could have a higher charge.

Things to look out for

You may have to pay in at least £10 - this could be for each payment or over the whole year.

Share accounts

Share accounts invest your child’s money by buying shares or bonds in companies. When those companies do well the shares or bonds go up in value so they make money. They can also go down in value.

Putting money into shares is more risky than putting money into a savings account, because they can lose value if companies perform badly. But this type of account may do well if your Child Trust Fund money is saved up for a long time. This is because poor performance in one year can be made up for by good performance in others.

Things to look out for

You might want to check the following:

  • if there is a charge to use this type of account
  • where you can get more information about the organisations where the money is invested
  • if the account drops in value, whether you could lose all your money and how the provider could prevent that from happening

Savings accounts

These accounts work in the same way as a bank or building society account.

The money you invest is secure and will earn interest. So, whatever money you invest, your child will get back that sum of money as well as earning an amount of interest on it during the time it was invested.

This type of account might not grow as much as it would if you had put your money into shares. You might want to keep track of the interest rates and move the account around to get a better deal.

Things to look out for

You might want to check the following:

  • if there is a cost for running the account
  • if the interest rate is fixed for a certain length of time and if so what happens after that
  • how you can guarantee that you’re always getting the best interest rate for your account

'Ethical' accounts

You may not want to put money into businesses you don’t agree with, for example those involved in weapons, tobacco or alcohol.

You may prefer to put money into businesses that sell goods according to the rules of fair trade, or that work to protect the environment. These are called 'ethical' accounts.

Sharia accounts

These accounts meet the rules of Sharia law. If you use a Sharia account, your money won’t be put into things like alcohol, tobacco or gambling.

How to decide which type of CTF account is right for you

The type of CTF account you want may depend on whether you:

  • want the best chance for the money to grow - this is called a 'return'
  • are prepared to get back less money than you have put in - this is called a 'risk'

Putting money (or 'investing') into shares can be risky - you may not get back what you put in. But over time, the account may grow more than one that doesn't invest in shares.

So you need to think about how happy you would be to invest in shares.

This table may help you decide which type of account to choose.

How do you feel about investing in shares?

How much risk do you want to take with the money?

Type of account best suited

You're happy to invest in shares

You're happy to take a high risk if it means your child might get more money at age 18

A shares account

A stakeholder account

You’re a little unsure about shares

You're happy to take some risk if it means your child might get more money at age 18

A stakeholder account

You don't want to invest in shares

You don’t want to take any risk even if it means your child might get less money at age 18

A savings account

If you’re still unsure what type of account to choose, you can get help from:

  • any Child Trust Fund provider
  • an independent financial adviser

You can also go to the 'Money Advice Service' website to get general advice on money, including savings and investments.

Once you have chosen the CTF account you want

When you have decided what type of CTF account to open, you need to choose a suitable provider.

If you want to change accounts

You can change the type of account you have at any time. Just check if your provider offers the account you want. If they don't, you may have to choose another provider.

Provided by HM Revenue & Customs who administer the Child Trust Fund

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