The Best Ways to Compare Child Trust Funds
The Child Trust Fund (CTF) is a long-term savings and investment plan set up by the Government to encourage you to save for your children’s future. Applicable for all children born after 1 September 2002 and living in the UK, an initial £250 sum is paid out at birth (£500 if your household income is below £14,495)http://www.childtrustfund.gov.uk/templates/Page____1169.aspxfollowed by an additional £250 when your child turns seven. In addition to the money paid into this account by the Government, you, your family and friends can contribute up to £1,200 each year.
Your children’s voucher can be invested in one of three types of accounts: Cash, Stakeholder or Shares.
Cash Accounts operate much like savings accounts, with interest earned on the sum invested.
Stakeholder Accounts invest your children's money in shares from a variety of companies, moving the money to lower risk investments or assets (lifestyling) when your child turns thirteen. The fees for these accounts are limited by the government to no more than 1.5% a year.
Shares Accounts operate similarly to the Stakeholder Accounts, but are not subject to the same government limitations on fee percentages.
So which type of account is best for you and how can you best compare Child Trust Funds?
The lower risk option is a cash account with the highest returns varying from 6-7%. Various websites compare the interest rates of numerous Cash Child Trust Fund accounts on the market and list which accounts offer introductory bonuses. The only one to be FSA regulated, as far as we know, is http://www.myeggnest.com/info/compare.aspx
Stakeholder and Shares Accounts potentially offer a much greater return in comparison to the cash accounts, but with a greater element of risk. To find an account which offers the best return on investment, MyEggNest.com compares the best performing Stakeholder Child Trust Fund accounts of the last two years and offers parent reviews of these products.
To compare Child Trust Funds, the return on investment from cash and shares differs widely. Compare £250 in the best cash savings account on offer (7.15% from Britannia Building Society) which will yield £287.03 over two years while the best performing stakeholder Child Trust Fund (Family Investment’s Ethical Account) will see this money grow to £377.70, a 25% higher return. If you invest the maximum annual allowance of £1,200 in this stakeholder account, your investment can be worth £1,812.96.
When you compare your children’s Child Trust Fund accounts, it is worth noting that funds which offer the greatest returns also offer the greatest risks. However, most experts will agree that over time shares will out perform cash savings.
"It is very important that parents and grandparents take a long-term view …. when you compare Child Trust Funds" says Tony Vine-Lott, director general of Tax Incentive Savings Association (TISA). Ben Yearsley of independent financial adviser (IFA) Hargreaves Lansdown. "I would back equities over cash. The markets go up and down and are volatile, but over such a time, it's the best option."
Which ever decisions you choose, you will still better off than the 25% of parents who choose not to do anything at all. Just remember to shop around and compare Child Trust Funds before you act, as it will be time well spent. Happy EggNesting!!!
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Submitted On: 2007-09-25
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