A Child Trust Fund: What Is It?

Over the course of the nine-year life of the government-sponsored savings program, millions of Child Trust Funds were established, but many of them were lost or forgotten

Here's what you need to know to keep track of your child's money.

In the noughties, parents of children were lucky to receive free money deposited into a Child Trust Fund, which they could then add to, creating a future nest egg.

Despite the fact that no new Child Trust Funds have been established since 2011, HMRC reported that the savings in these accounts totaled an astounding 9 billion as of October 2024.

A child trust fund: what is it?

A tax-free savings account created for children born between September 1, 2002, and January 2, 2011 is known as a Child Trust Fund. Depending on what the parents want, they could be opened as a cash savings account or as a stock and share account.

The child's savings journey was initiated by a government donation. The state had contributed £2 billion to Child Trust Funds by the time the program concluded in 2011.

The Child Trust Fund was created with the intention of raising awareness of investing by encouraging people to start with small investments, according to Lisa Caplan, director of the investment platform Charles Stanley Direct Advice and Guidance.

"All of the standard principles apply to these accounts, so I believe it's a good teaching tool for young adults. If a child has a particular interest, you can invest in shares, leave it in cash, or choose to invest in funds.

They understand both the drawbacks and the benefits of a faltering stock market, but that's just a natural part of investing.

The operation of Child Trust Funds.

Immediately following the award of Child Benefit, parents or legal guardians of children born during the qualifying years who applied for the benefit were given a voucher to open a fund.

Once the accounts were opened, the government would credit the fund with cash that varied in value based on the child's birthdate. Parents could take the voucher to a bank, building society, or credit union that offered the accounts.

250 were given to those born on or after September 1, 2002, and an additional 250 were given to low-income parents or children in the local government's care.

A reduced payment of fifty or one hundred dollars was given to low-income households or those under the care of the local authority if you were born on or after August 3, 2010.

Additionally, a 250 bonus was given to children who turned seven between September 1, 2009, and July 31, 2010, and this amount increased to 500 for eligible kids.

The parents' account was opened by HMRC if it wasn't opened within a year of getting the voucher.

Up to £9,000 can be deposited annually into a Child Trust Fund until the account matures when the child turns 18, after deducting the government's contributions.

Although you can still keep your money in the account, no more money can be deposited at this time. Although the child is listed as the account holder and the money is theirs, they cannot take it out until the fund matures. When they turn sixteen, they have the option to assume control of its administration and decide how their funds are allocated.

Have I got a Child Trust Fund?

Indeed, you will have one of these accounts if you were born during the eligible years and your parents or guardians filed for Child Benefit on your behalf.

But the taxman set up about 11.7 million, and parents and kids might not even be aware that they have one or where it is.

Loss of Child Trust Funds is a significant issue, as there is 11.4 billion sitting around in accounts that have matured but have never been accessed.

The government's tracing service can be used to locate your account if you are unsure of your provider's name. You must have your National Insurance number on hand and be at least 16 years old in order to look for your own fund. If you are not 18 years of age or older, you will need to conduct your own search. Alternatively, a parent or guardian may search for you.

A Government Gateway account is also required, and if you don't already have one, you can create one online. HMRC will write to you with the provider's name after you've finished the search, usually within three weeks. The amount in the account won't be displayed.

How to get into a child trust fund.

You can access the funds in your Child Trust Fund once you turn eighteen. In the months before your 18th birthday, some providers will get in touch with you to discuss your options for accessing your money.

Although each provider has different methods for granting access to funds, it is typical to be able to receive a check or arrange a BACS transfer to your personal bank account.

Are funds from the Child Trust still available?

No, you can no longer open the accounts. It will remain active and be able to be paid into until maturity if it was opened during the qualifying years.

Junior ISA (JISA) accounts, which can be opened as cash savings accounts or stocks and shares accounts and have an annual limit of £9,000, are a tax-free option. The account becomes an adult ISA once you turn 18.

"For young savers, a Junior ISA is the obvious destination," Caplan stated. "It's generally a good thing if you've recently discovered your Child Trust Fund because it can be transferred into a JISA.

According to my experience, a Child Trust Fund can be opaque, but they are more transparent and visible, allowing you to see what's going on. Since they were tiny savings pots, the companies that offered them never made the necessary investments in the accompanying technology.

You can move money from a Child Trust Fund into a Junior ISA before it matures. However, once in the Isa, it is kept hidden until the child turns 18.

Are funds in child trusts exempt from taxes?

Yes, there is no tax on child trust funds. This implies that you are exempt from paying taxes on any interest you receive from savings or profits from investments.

Can parents withdraw funds from a Child Trust Fund?

The funds in a child trust fund are the child's property since the account is in their name. Accordingly, only they are able to withdraw their money after turning eighteen. This is only not applicable if the child passes away or has a terminal illness.

Do Child Trust Funds earn interest?

In the event that you have a cash savings account, you will indeed receive interest on the funds allocated to your Child Trust Fund.

Interest rates are variable, meaning they can fluctuate over time and differ between providers. Your money's value will fluctuate if you invest it in the stock market, as share or bond prices are influenced by various economic factors.

See if you're getting the best rate on your savings by researching the market. Junior ISA rates are typically more competitive than Child Trust Fund interest rates.