The Government’s Child’s Trust Fund scheme is designed to give your child a running chance at saving for later life. The project, which sees a £250 voucher distributed to all eligible children, aims to meet four key objectives: to give your child a head start in saving for later life; to help your child develop a habit of saving from an early age; to educate your child about the benefits of saving and to help your child understand the principles of personal finance.
Eligible children are those born on or after 1st September 2002. The amount that each child receives is actually designed on a two-tier system. Those receiving child benefits and living in households earning more than £15,575 per year, receive the standard £250 voucher. Those in households earning less, receive a voucher worth £500. Following the Chancellor’s Budget in March 2006, every child in receipt of a voucher will also receive a second on the seventh birthday of the same amount previously gifted.
When you receive your child’s voucher, you’re advised to open a Child Trust Fund account immediately, otherwise Her Majesty’s Revenue and Customs (HMRC) will do so on your behalf after 12 months of inactivity. You can choose what type of Child Trust Fund account to open, and it’s a popular choice to opt for a high interest savings account or designated Child Trust Fund account that’s offered by most lenders.
The Child Trust Fund is a tax-efficient way to save as it’s exempt from income and capital gains tax. You can also add to it, tax free, up to £1,200 per year and that includes contributions from friends and family. The money will remain locked away from you and your child until his or her 18th birthday, at which point your son or daughter can do with the accumulated capital what they wish.
However, due to the long-term savings and investment element, you could expect that your child would continue to add to their savings. At that stage, he or she could also consider moving or changing their savings arrangement into something more secure or, alternatively, higher risk. Investment savings in shares accounts or stakeholder accounts are potential options at this stage.
The Child Trust Fund voucher is an opportunity for your son or daughter to grow with their money and to develop a stronger understanding of financial management and responsibility. When they finally come of age to advance it, while they could spend it all in one day on a shopping spree, it’s more than likely that they will have developed the financial savvy to continue to build on their money, or invest it more constructively.