With the first child trust funds set to mature in September teenagers are going to get their hands on a total of around £6bn. So what should they do with it?
Children born between 1 September 2002 and 1 January 2011 were given a child trust fund (CTF), the precursor to junior individual savings accounts (Jisas). The government deposited £250 (or £500 for low-income families) into the account; then parents, family and friends could add to it. If the child turned seven before 31 July 2010, they got another £250 or £500 from the government.
So, even if no-one else ever paid any money into the account there could be as much as £1,000 plus interest waiting for the child when they turn 18. “Lucky teenagers will be able to celebrate attaining adulthood…[with] free money from the government,” says Ian Cowie in The Times. How much they’ll get depends on which CTF option their parents chose.
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If they stuck to cash then £100 would now be worth around £171, given average interest rates on savings accounts. That’s enough to beat inflation, but pales when compared with the returns CTFs invested in the stockmarket may have enjoyed. “Those willing to accept some risk have mostly been well rewarded,” says Cowie. “The average UK All Companies investment trust turned £100 back then into £220 now.”
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While some may only have a few hundred pounds in their account, others could have far more. “Someone who got the two £250 government contributions” as well as £100 a month from their parents since birth, and invested the money in the FTSE 100, would now have £33,564, says Rupert Jones in The Guardian. But whatever the size of the CTF, it is now time to decide what to do with the money.
Where to find lost accounts
If the CTF provider has the right contact details the child should receive a statement to remind them about their account and how much is in it just before their 18th birthday. They can then withdraw the money once they are 18. You can track down lost CTFs via the Share Foundation’s free search service (findctf.sharefound.org) or the government’s own Find a Child Trust Fund web page (gov.uk/child-trust-funds/find-a-child-trust-fund).
If they don’t take the cash, then the money will automatically be moved into another tax-free account, which is likely to pay a pitiful interest rate. So, if the money isn’t going to be spent it is important to shop around and find a good new home for it instead.“Interest rates are low... so they should think about investing it instead, for something like a house deposit in the future,” says Martin Shaw of the Association of Financial Mutuals in The Daily Telegraph.
If the money is going towards a house, then a Lifetime Isa could be a good new home, as long as you have less than £4,000 to invest. It can continue to grow tax-free and when it’s used for a deposit on a first home the government will add a 25% bonus. But you can only save a maximum of £4,000 a year and it can only be accessed to buy a house, or once you are over 60, so be certain before choosing this option.
Alternatively, “it’s easy to convert a CTF into an adult Isa and moving the money across won’t count towards their annual tax-free limit”, says Shaw. The best rate currently available on a cash Isa is 1.3% from United Trust Bank, but it is a seven-year bond. For instant-access accounts, NS&I are paying 0.9%.
