Child Trust Funds (CTFs) were launched by the Government in 2005. They ensure every child born after 1 September 2002 is given a voucher of £250 to start an account. A CTF voucher is automatically sent to you in the post when your child is born and if you do not invest this within one year, the Government will put it into an account for you. In essence CTFs are long term savings and investment accounts where your child (and no-one else) can withdraw the money when they turn 18 and not before.

Children in families receiving Child Tax Credit (CTC) may be entitled to an additional payment of £250. Entitlement is normally based on the date child benefit was first paid for the child. Where child benefit was first paid for your child on, or after 6 April 2008 you must have household income under the CTC threshold (£15,575 for 2008/09) and claim CTC no later than the date your CTF voucher expires. Make sure you don’t leave it too late!

The Government will make a further contribution when your child is seven – all eligible children will receive a further payment of £250 into their CTF account at this age, with children in lower income families again receiving an additional £250. These payments will be paid around the child’s 7th birthday directly into their account.In terms of additional payments, relatives and friends can also contribute up to an additional £1,200 a year.

Parents can choose from one of two main types of account – a savings account and a stock market-based investment. Cash accounts are offered by most banks and building societies, while there are a number of specialist CTF providers who offer access to stock market investments, such as mutual funds. All income and capital gains are completely tax-free, and the money in the account cannot be accessed until the child is 18.

Children themselves can start to make decisions about how the money is managed when they are 16 and at any time you can move the account to a different provider or change the type of account.

Basically, the Government intention in launching this scheme was to ensure all children had some savings at the age of 18, as well as to help foster a better understanding of savings and personal finance. More personal finance is to be included on the school curriculum over the next few years, and the hope is that CTFs will help to ensure financially literacy.

More information can be accessed at the Government’s website dedicated to CTFs – www.childtrustfund.gov.uk . Specialist providers such as The Children’s Mutual and Family Investments also have plenty of information about investment options on their own websites.