In today’s world ensuring that your child has a prosperous future ahead of them comes in many forms, from putting them up on Britain’s Got Talent to them becoming Hollywood stars from the Slums of Mumbai. However, for the rest of us making good financial decisions while your children are at an early age can prove invaluable in giving them that vital step up later on in life. Opening a Child Trust Fund could certainly be a good start in the right direction.

The government recognizes the need for parents to take charge of the child’s financial future as the welfare state diminishes. The Chancellor helps parents take that first step by offering a £250 voucher (or £500 for low income parents) to children born after September 2002 to put away in a Child Trust Fund.  The fund is boosted by the same amount when the child turns seven. In addition, all the savings made will be free of tax, as long as the parent has filled in a HMRC R85 form. Despite the helping hand as many as a third of parents according to Foreign and Colonial, have not made any financial provision for their children.

In essence, there are two types of trust funds parents opt for; either a cash or stock market based fund. Typically, the cash element will bear little to no risk while the stock market fund will have a greater degree of risk associated with it, but a greater potential to grow. There are a wide variety of providers that offer these accounts so it’s important to do some background research before plunging your cash into any specific account. It is important to remember that the account can only be accessed by the child upon their 18th birthday, therefore any savings strategy should be focused on the long-term. 

One of the many advantages of starting to save for your child early on is that the fund can very quickly grow due to compound interest or dividends it accumulate. Finally, anyone can put up to a maximum of £1,200 a year into the trust fund for the child and therefore, helping the child in the future can be a family affair.