Savings for your Child’s Future Today: Is a Child’s Trust Fund the Answer?
by Ritchie Mehta (18 October 2008)
Have you ever dreamed of your children going to private school or university? Or perhaps helping them get on the property ladder when they are older? Well, in today’s uncertain world saving for your children’s future, while they are young, can make all the difference when they need a helping hand when they are older. A Child Trust Fund is an ideal vehicle to help you start to save for your child’s future or to allow grandparents to contribute in a tax efficient manner.
The government recognises the importance of parents saving for their children and give a £250 voucher to all children born after the 1st of September 2002 to start the account. They also offer another £250 for all eligible children on their 7th birthday. In addition, it is a great way to save tax-free as neither the parents or the child will be taxed on any interest and gains earned in the account. A parent can put a maximum of £1,200 a year into a CTF, however it is important to note that once the money has been put in, it can only be taken out by the child when they turn 18.
There are a number of different types of accounts a parent can opt for, depending on the level of risk and expected growth. There is a standard savings account, where all money will earn a set amount of interest at minimal risk. At the other end of the spectrum you could have a CTF that invests the money in shares, which means that although the risk is higher, there is greater potential to earn a higher return for your child. And you could also opt for an ethical account which is compliant with Islamic values.
Choosing an account that best suits you and the future needs of your children is extremely important. However, consideration must also be given to the wider economic and market factors to see how best the money will work for you. Today, with the markets reaching a five and a half year low it could well be a good point to start to invest in a shares account as over the long-term their could be good potential for growth. However, as investment values can go down as well as up it is worth taking professional advice before investing in an account that is dependant on market performance.