The first child trust funds will start to mature in less than a year – but millions of young savers may not realise they even have one.
Six million child trust funds were set up for children born between 1 September 2002 and 2 January 2011. The oldest savers are now 17, meaning they can manage the funds themselves, and withdraw their money next year.
Over the next 10 years, all children with a child trust fund will gain access to them – but an estimated three million might not realise they have an account or have lost track of it, leaving £2.5bn in limbo.
Which? explains how CTFs work, how to track one down and whether it’s worth moving a CTF to a Junior Isa.
What is a child trust fund?
A child trust fund is a tax-free saving account that was introduced by the government in 2005 to kick-start savings for young people.
The government sent vouchers for these funds to parents and guardians of children born between 1 September 2002 and 2 January 2011. After this date, the scheme was axed and replaced by the Junior Isa.
However, these trust funds remain active, with the cash locked away until the children come of age.
Children are able to manage their CTF accounts from the age of 16 but have to wait until 18 to take out any of the money.
Many CTFs were opened by HMRC on behalf of the child, in cases where the parent or guardian had failed to do so or when families were receiving Child Tax Credit – so it’s feared many young adults don’t even realise they have a pot of money waiting for them.
Find out more: Child trust funds
How much could be in a lost CTF?
Each child was given £250 (or £500 if in a lower-income family) which could be invested in a cash account or an investment CTF.
The government would top it up with another £250 or £500 at the age of seven. Parents or grandparents could also make additional contributions, up to an annual limit.
After a change in government, the scheme was scaled back in August 2010 to £50 (or £100 if from a lower-income family), and the top-up at age seven was abolished.
The Share Foundation, a charity that looks after CTFs and Junior Isas for children in care, says a CTF with just £250 contributed from the government in 2002 could be worth over £800 by now if it had been in an investment account tracking the FTSE 100. If the money was held in cash, CTF estimates it could be worth £352.
How to trace a lost or forgotten CTF
If you think your child may have a child trust fund, but you don’t have the details, you can trace it using HMRC’s Child Trust Fund tracing service.
To use this service, you must be either the parent or legal guardian, or the young person who owns the account (provided you’re sixteen or older).
First, you’ll need to set up a government gateway ID. You just need your National Insurance number, plus another way to prove your identity like a passport or recent payslip, to create your account.
Once you find out where the account is held, you can get in touch with the provider to update your details and manage your account.
For children who grew up in care, a trust fund was set up for them and The Share Foundation acts as the registered contact for these accounts.
Around two months before these children turn 16, the Share Foundation will write to them with information on how they can become the registered contact for their account.
They can then choose whether to start managing it themselves or leave it in the care of The Share Foundation until they turn 18 and can withdraw the money.
Should you switch a CTF to a Junior Isa?
As of 6 April 2015, parents and legal guardians have the option to switch their funds from a child trust fund to a Junior Isa.
A Junior Isa, like an adult Isa, allows you to save tax-free, though there’s a limit to how much you can deposit each tax year – in 2019-20, it’s £4,368.
The money can be invested in a cash account, or a stocks and shares account. Like a child trust fund, the child can take control of the account when they turn 16, but only withdraw money when they are 18.
There are a number of benefits to switching from a CTF to a Junior Isa including:
- Better rates: cash Junior Isa interest rates are typically higher than CTFs (the top rate pays 3.6%)
- More choice: there are more Junior Isa accounts on the market to pick from
- Lower fees: junior stocks & shares Isas have lower fees than stakeholder child trust funds with a wider choice of investments
Before switching, you should check whether there are any exit fees or guarantees that will be lost if you move.
If you decide to go ahead, moving your money is simple.
Select your new Isa provider and fill in a Junior Isa transfer form. Your new Junior Isa provider will take care of switching and closing the CTF for you within 30 days.
Find out more: Junior Isa rules and allowances