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Child Trust Funds: where is your child’s cash?

Your offspring may have a child trust fund tucked away. If so, their money is being consumed by fees

A child © Shutterstock
Are you paying too much for his savings?

Next year Britain's first child trust funds (CTFs)will start to mature. But millions of people may well have forgotten all about them. Child trust funds (CTFs) were available from 1 September 2002 to 2 January 2011. If your child was born in that period they will have received vouchers from the government to kickstart their savings. Every child received £250 (those in lower-income families got £500) to start their account, then another £250 or £500 at the age of seven. This sum was reduced to £50 in August 2010 before CTFs were abolished.

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Many parents and grandparents added money to the accounts too, so some teenagers will be able to access thousands of pounds when they turn 18 and their accounts mature. But around three million "might not realise they have an account or have lost track of it, leaving £2.5bn in limbo", according to Reena Sewraz on Which.co.uk. On average the unclaimed accounts are worth £1,600, says Lily Canter in The Sun. Even assuming only the initial £250 government voucher was deposited, it would now be worth £800 had the CTF been invested in shares (assuming it tracked the FTSE 100). A cash-CTF would be worth £350 with accrued interest.

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If you think your child may have a CTF but don't have any details you can find it via HMRC's Child Trust Fund tracing service at gov.uk/child-trust-funds. Alternatively, if you know the provider but have lost your account details you can contact them directly.

Check the charges

Even if you know exactly where your child's savings are you may want to check on them. "Many youngsters with CTFs are having their nest eggs eaten away by fees," says Kate Palmer in The Sunday Times. Half of the platforms that offer investment, or "stakeholder" CTFs are charging the maximum annual charge the government allows: 1.5%.

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This "is an expensive way to save, because most CTFs are invested in tracker funds that simply mimic an index," says Palmer. There is no fund manager to pay for choosing stocks, after all.

Transfer a CTF into a Junior Isa (Jisa) where the fees are far lower. For example, AJ Bell charges 0.25% for Jisas worth less than £250,000; Charles Stanley, 0.35%. If you invested in, say, the Vanguard LifeStrategy 80% Equity fund, which charges 0.22%, your total cost on each platform would be 0.47% and 0.57% respectively, far below the fees on most CTFs. Buy on Vanguard's platform, which charges just 0.15%, and your total cost would be just 0.37%.

It is particularly important to check the charges on a CTF if it is going to mature soon. The 1.5% cap only applies to CTFs so fees could rise substantially when your child turns 18. The government has yet to decide what will happen to CTFs when they mature; they will probably be converted into adult Isas.

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