The Government stopped new Child Trust Funds (also known as CTFs) from being opened over 13 years ago yet millions of children still have Child Trust Fund accounts, many of which have been forgotten about. As a legacy product, knowledge of CTFs and how they worked is low. We wanted to answer the most common questions about Child Trust Funds as part of our goal of raising awareness about CTFs and ensuring that children and their parents make the most of the money locked up in them.
What is a Child Trust Fund?
Child Trust Funds were tax-free accounts especially for children launched by the Government in 2005 to encourage parents and others to put money away for when their child turned 18. Almost every child born in the UK between 1 September 2002 and 2 January 2011 was given a voucher, normally worth £250, to open a Child Trust Fund. If the parents did not open a CTF account within 12 months of the child’s birth then the Government did it for them.
You cannot open a Child Trust Fund anymore and it was replaced by the Junior ISA but old Child Trust Funds continue to exist and millions of children born before 2nd January 2011 have them.
Do I have a Child Trust Fund?
If you were born in the UK before 2nd January 2011 when the scheme was in existence, it is likely that you were given a Child Trust Fund voucher and have a Child Trust Fund account even if your parents were unaware of it. Some CTFs have since been switched into Junior ISAs but the majority have not.
Around 6 million Child Trust Funds were set up. Recent estimates from The Investing and Saving Alliance (TISA) are that over a quarter of Child Trust Funds were unclaimed a year after maturity and for many of the non-matured accounts providers will not have up-to-date contact details.
How do I find a lost Child Trust Fund?
The best way to find out if you have a Child Trust Fund and to see which company holds the account is to go to the 'Find a Child Trust Fund' page on the Government website and use the HMRC tool to ask them to find it.
What can I do with a Child Trust Fund at 18?
At 18, the Child Trust Fund matures and money must be withdrawn or moved to a different account such as an adult ISA. There is no need to keep the account with your existing provider and, as many of the largest Child Trust Fund providers have relatively high fees, it may be worthwhile switching to a better value provider such as Beanstalk.
What is the difference between a cash Child Trust Fund and a shares Child Trust Fund?
Like Junior ISAs, Child Trust Funds could be “cash” accounts where the money was held in a savings account earning interest, or stocks and shares or stakeholder accounts where the money was held in investments and the returns depended on the performance of the investment.
How much was the Child Trust Fund voucher?
The Child Trust Fund voucher was worth £250 with some low income families being given £500. For six months prior to its abolishment, the value of the voucher was reduce to £50.
Do you pay tax on a Child Trust Fund?
Like Junior ISAs, Child Trust Funds were tax-free in that any income earned or increase in value of the investments were normally free of either income or capital gains tax.
Can I withdraw from my Child Trust Fund?
Only when you turn 18. The Child Trust Fund is in the child’s name but is managed by the parent on their behalf. Money cannot be withdrawn until the child turns 18 except in exceptional circumstances.
Similarly, you cannot close a Child Trust Fund but you are allowed to transfer it into a Junior ISA. As CTFs are legacy products, providers have little incentive to innovate, so Junior ISAs (such as Beanstalk’s) often have more features, may be better value and are likely to be much easier to manage. Child Trust Funds came into existence before apps or even online servicing was common so accessing statements may be hard depending on the provider.
Are Child Trust Funds expensive?
The most common form of Child Trust Fund was a stakeholder account. The Government capped fees for these at 1.5% per annum so unsurprisingly many providers charged this amount and some of the larger providers still do. Many provider’s fees for stocks and shares Junior ISAs are much lower: Beanstalk, for example, charges 0.5% so it may make sense to shop around if you're looking to switch accounts.
Cash CTFs (and cash Junior ISAs) do not typically charge fees as the costs are taken into account in the interest rates that providers offer.
How do I switch a Child Trust Fund to a Junior ISA?
Switching a Child Trust Fund to a Junior ISA is easy with Beanstalk. When you apply for a Beanstalk account, we will ask you if you have an existing account to transfer. If you do, all we need is for you to sign and return to us (via email or Freepost) a transfer form that we will send to you.
We take care of everything else by sending it on to your existing provider, arranging for them to close your existing account and transferring the funds over to your Beanstalk account.