Parents with children born in the noughties were fortunate to benefit from free cash deposited into a Child Trust Fund which they could add to, building up a nest egg for their future.
HMRC recorded the value of savings sitting in these accounts to be a staggering £9 billion as of October 2024, despite no new Child Trust Funds being opened since 2011.
What is a Child Trust Fund?
A Child Trust Fund is a tax-free savings account opened for children born between 1 September 2002 and 2 January 2011. They could either be opened as a stocks and shares account or a cash savings account depending on the parents’ preference.
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A contribution from the government kick-started the child’s savings journey. By the time the scheme ended in 2011, the state had deposited £2 billion into Child Trust Funds.
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Lisa Caplan, director of Charles Stanley Direct advice and guidance, the investment platform, said: “The purpose behind the Child Trust Fund was to get more people aware of investing by taking baby steps into it.
“I think it’s a good educational tool for young adults because all the normal principles apply to these accounts; you can leave it in cash, you can invest in funds or you can invest in shares if a child has a particular interest so you can show them how it works.
“They do get the downsides [of a declining stock market] as well as the upsides but that’s very much part of the investing experience.”
How Child Trust Funds work
Parents or legal guardians of children born within the qualifying years who applied for Child Benefit received a voucher to open a fund soon after the benefit was awarded.
Parents could take the voucher to a bank, building society or credit union offering the accounts and once opened, the government would credit the fund with cash which differed in value depending on when the child was born.
Those born on or after 1 September 2002 received £250 with an extra £250 awarded to low-income parents or children being cared for by the local authority.
If you were born on or after 3 August 2010, you got a reduced payment of £50 or £100 for low-income households or those in local authority care.
There was also an extra giveaway of £250 for those turning seven between 1 September 2009 and 31 July 2010 which rose to £500 for qualifying children.
If the account wasn’t opened within 12 months of receiving the voucher, HMRC opened it on the parents’ behalf.
Discounting the government’s contributions, up to £9,000 can be paid into a Child Trust Fund each year until the account matures when they turn 18.
At this time, no further money can be paid in but you can still keep your money in the account. The child is named on the account and the money belongs to them but it cannot be withdrawn until the fund matures. From the age of 16, they can choose to take over its management and make decisions over how their money is invested.
Do I have a Child Trust Fund?
If you were born within the qualifying years and your parents or guardians claimed Child Benefit for you, yes you’ll have one of these accounts.
However, around 1.7 million were set up by the taxman which parents and children may not even know they have one or where it is.
And with £1.4 billion sitting around in accounts that have reached maturity but have never been touched, lost Child Trust Funds are a big problem.
If you don’t know the name of your provider, you can find your account using the government’s tracing service. To search for your own fund you need to be aged 16 or over and have your National Insurance number to hand. Or, a parent or guardian can search for you unless you are aged 18 or over – then you must carry out your own search.
You’ll also need a Government Gateway account which can be set up online if you don’t have one. Once you’ve completed the search, HMRC will write to you usually within three weeks to tell you the name of your provider. It won’t tell you how much is in the account.
How to access a Child Trust Fund
Once you’ve turned 18 you can access the money in your Child Trust Fund. Some providers will contact you in the months leading up to your 18th birthday to give you options of how to access your cash.
How you access your fund depends on the individual provider but it’s common to be able to arrange a BACS transfer to your own bank account or to receive a cheque.
Are Child Trust Funds still available?
No, the accounts are no longer available to open. If one was opened during the qualifying years then it will still be active and can be paid into until maturity.
A tax-free alternative is the Junior ISA (JISA) account which also comes with a £9,000 annual limit and can be opened as a stocks and shares or cash savings account. When you’re 18, the account changes to an adult ISA.
“A Junior ISA is the obvious destination for young savers,” said Caplan. “If you’ve just found your Child Trust Fund it can be moved into a JISA and in general that’s a good thing.
“They’re more visible, more transparent, you can see what’s happening whereas a Child Trust Fund, in my experience, can be opaque. The companies that offered them never invested in the technology to go with it because they were small savings pots.”
Savings in a Child Trust Fund can be transferred into a Junior ISA before it matures. Once in the Isa, however, it is locked away again until the child is 18.
Are Child Trust Funds tax-free?
Yes, Child Trust Funds are tax free. That means you don’t have to pay tax on any interest earned on your savings or gains made on your investments.
Can parents take money out of a Child Trust Fund?
As the account is in the child’s name, the money in a Child Trust Fund belongs to them. This means from their 18th birthday, only they can take their money out. The only exception to this is if the child is terminally ill or dies.
Do Child Trust Funds gain interest?
Yes, you will receive interest on the money in your Child Trust Fund if you have a cash savings account.
Interest rates vary between providers and are variable so they can go up and down over time. If your money is invested in the stock market, its value will rise and fall depending on the changes of share or bond prices which are affected by factors in the economy.
Junior ISA rates are generally more competitive than Child Trust Fund interest rates so research the market to see if you’re getting the best rate on your savings.
