Child Trust Funds
Every newborn baby is now given a voucher worth £250, rising to £500 in the case of low-income families, when its parent or parents register for Child Benefit. This money must be used to open an account under the Child Trust Fund scheme.
The government will make a similar payment when the child is seven.
In addition, parents and relatives can make voluntary contributions up to £1,200 per year to fund the account, either by lump sum or regular monthly contributions to take advantage of the long-term tax-efficient investment.
By using this allowance you could build up a useful capital fund by the child's 18th birthday (when the assets will be available for use), perhaps enough to contribute towards the cost of university, or a deposit on a home. Bear in mind that the average university student now graduates with debts of some £12,000.
How can we invest for our child?
There are many investment options for parents. Most common are high interest rate accounts with banks and building societies. However, stocks and shares have tended to perform better than cash over longer terms and are more likely to beat the effects of inflation.
There are two general types of investment strategies available, and we offer three types of Child Trust Fund accounts with varying investment options.
The Stakeholder invests in FTSE tracker-style funds. The maximum annual plan charge allowed, plus fund expenses, is 1.5%.
The Non-Stakeholder allows investment into any fund or trust, and has no cap on annual charges. This allows the investor to choose actively managed funds or trusts and also individual shares.
The Children's Mutual operates a plan that offers both stakeholder and non-stakeholder options. The stakeholder option is an investment in the Insight Foundation fund that will track the FTSE All-Share Index. The maximum annual charge on the fund is only 1.5%. The non-stakeholder option includes a range of 11 managed funds from Gartmore, Invesco, Insight, and UBS. An ethical fund is also available.
Click here for the Key Features Document.
Click here for the application form.
Our offer: 3% discount off the standard initial fund charges. This applies to voluntary contributions only and only applies to non-stakeholder funds.
Foreign & Colonial offers a selection of thirteen of their own investment trusts covering areas from UK smaller companies, international growth, the Asia Pacific region, and private equity. They offer a stakeholder option investing in the F&C FTSE All-Share Tracker Fund.
There are no initial charges on this plan, just stamp duty of 0.5%.
4TheKids': this is a non-stakeholder self-select plan from Reyker Securities in which you may select any UK-listed share or any investment trust share. The broking commissions are competitive, 0.9% plus stamp duty on any share purchase. The annual plan charge is 0.5% plus VAT. Therefore, in the early years it would be economical for one share to be chosen. But as the account value grows it should be possible to diversify into other shares.
Ask us !
For more information on any aspect ofChild Trust Funds call us on
0800 33 99 99
and ask for Andrew Graham or Mike Burgess
What could it be worth?
We estimate that, with an average 7% annual growth, £500 would be worth £1,410 in 18 years. But, if parents or grandparents top up the fund with a regular £10 a month, it would grow to £5,210.
And, if parents paid their weekly child benefit into the fund, the fund would grow to a sizeable £27,000 after 18 years, with 7% annual growth.
Even if the initial sum was only £250, then, adding in the £250 payment at 7 years of age, and assuming the maximum "top-up" of £100 a month, the final pot could be £37,000.
This is calculated on the basis of the FSA tax-exempt mid-rate of 7% per year. Bear in mind of course that these figures are not guaranteed and the child could get back less than this.
