Child Trust Funds may be on the way out, but that doesn’t mean you should neglect your child’s existing investments. Simply switching accounts could make a big difference when it comes to protecting your child’s future. We show you how.
As you are probably aware, the new coalition government has recently announced that CTFs will be scrapped. Government contributions will be reduced after August 2010 and stopped altogether after 1st January, 2011.
But it’s not all bad news. Despite the reduced contributions, your child will still be eligible for a CTF voucher if they are born before 1st January, 2011. What’s more, although there won’t be any more CTF vouchers issued after this date, you will still be able to transfer existing CTFs between accounts and providers so as to keep your child’s savings as profitable as possible.
Can you switch CTF accounts?
You are free to transfer your child’s savings between child trust fund accounts whenever you wish. This applies both to internal transfers from say, a savings-based CTF account to a stakeholder account with the same provider, as well as between one provider to another.
The process should take on average around 30 days and there are no restrictions on the number of transfers you can make during the lifetime of the CTF.
How do I switch CTF accounts?
Switching Child Trust Fund accounts is relatively straight forward. All you need to do is compare the options available, choose a new account for your child, and apply.
The new CTF provider will organise the transfer of your child’s savings for you and then inform HM Revenue & Customs accordingly. This will ensure that any future payments from the government will be credited to the right account.
Providers can’t charge you for transferring savings from one child trust fund to another. However, providers of share-based accounts (stakeholder and non-stakeholder) may deduct any costs associated with withdrawing money from your investments so you will need to check this.
When should I switch?
If your child’s savings are sitting in a savings-based CTF account that isn’t paying a great deal of interest, moving their money is a good way of making sure they consistently earn the best rate possible.
Child Trust Fund savings accounts don’t place any guarantees on interest rates which means they can drop at any time. For this reason you’ll need to keep an eye on the rate of interest your child’s savings are earning throughout the life of the Child Trust Fund so as to make sure they stay as competitive as possible.
Switching accounts is also a way of reducing the risk associated with non-stakeholder share-based Child Trust Fund accounts.
While some of these accounts apply lifestyling – where your child’s money is moved to progressively lower risk investments as they near the age of 18 – automatically, others do not. As lifestyling helps to reduce the risk to your child’s capital it may be that you want to do this yourself if the account that houses their savings doesn’t.
By moving their money to a ‘lower risk’ CTF (either a non-stakeholder account that applies lifestyling, a stakeholder CTF or a savings-based account) as they near the age of 18 you can minimise the risk to both their capital and any return they’ve made so far by effectively ‘banking’ their profits.
