£250 free: Child Trust Fund

The Government will give you a voucher worth £250 when your baby is born, which is valid if it's put into a Child Trust Fund as an investment for your child. Dad Info runs through how it works, how to get it, and where you can put your free money.

To help you save for your child’s future, the Government will pay £250 (or £500 if you get Child Tax Credit) into a Child Trust Fund - a long-term tax-free savings and investment account your child will be able to access when they reach 18. You, your family and friends can add up to £1200 to the account each year.

If you have a household income bigger than £14,495, you'll get a £250 voucher for each eligible child and those with less income get £500. When the kids reach seven, a further £250 or £500 voucher will be given, dependent on the same income scale.

How do I get it?

There are four steps to getting your Child Trust Fund set up:

1. claim Child Benefit. You have to be getting Child Benefit to be eligible. You'll be sent your £250 voucher in your Child Benefit Information Pack shortly after you start to receive it. 
   
   
   • Child Benefit
2. choose an account. See What kind of account? below.
3. choose a provider. There are a number of companies offering Child Trust Fund accounts to parents. The Government provides an up to date list of companies that offer CTFs.
4. open an account. Once you've decided what type of account you're going to get, and with whom, you can go ahead and contact your provider to open the account.

What kind of account?

There are three types of account:

1. Stakeholder. Your money is invested into company shares, and when your child reaches 13, the money is moved into lower risk investments.
2. Shares. Your money is invested into company shares for the entire duration of the savings account. The amount you have saved could go up or down, depending on the performance of the shares.
3. Savings. Your money is held by your account provider and earns interest. The total sum saved is secure, and interest is added to this amount.

• Saving: a basic guide

Getting the most out of the Child Trust Fund

According to BestInvest, the best performing CTF funds have performed ten times as well as the worst, so its worth having a good look at what you get before taking the plunge.

Around 74 per cent of parents opt for Stakeholder CTFs, but even these have a wide range of performance - the worst performing Stakeholder fund returned 15 per cent in the first five years while the best returned 40 per cent. 

If you're not into risky investments, go for a Savings account, which will give you around six per cent return on your investment. But even if you don't like risks, because the investment is over a long term, 18 years, you're unlikely to get caught out by poor performance in an economic downturn.

Shares are likely to outperform cash investments over that long a period. Over any given 18 year period, shares have only been outperformed by cash once, over 50 years ago. 

• The best 18 year investments  

Obviously, if you are able to add to the savings yourself, you'll reap the rewards, and the savings will generate considerably more money in the long term, so try to get a monthly amount going into the account.

• The best Child Trust Funds on the market

Author

Tom Beardshaw is a co-founder and the Publisher at Dad Info, creating the website and the things we print. He lives and works in Cardiff raising his son and supporting his other lad in South Africa. Find his blog at www.tombeardshaw.com.

Your thoughts

Child Trust Funds - good idea? What advice would you give other dads looking to set up a CTF? Your thoughts and tips please... use the comments system below.