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Join Which? MoneyChild trust funds: thousands of teenagers could be missing out on more than £2,000 in savings
It's estimated that £1.7bn is currently languishing in unclaimed accounts
Tens of thousands of teenagers could be missing out on savings held in child trust funds (CTFs), with The Savings and Investment Alliance estimating more than a quarter of accounts that reached maturity at least year ago are still untouched.
CTFs were set up for every child born between 1 September 2002 and 2 January 2011. Children can access the cash once they turn 18, but because these accounts were set up automatically, many have been forgotten and are lying dormant.
Speaking at a House of Commons committee meeting last week, Gavin Oldham - chair and founder of children's financial education charity The Share Foundation - claimed £1.7bn was sitting in forgotten CFTs. While the latest HMRC figures show the average amount of unclaimed cash sat in those accounts is worth £2,100.
That's a tidy sum for a school leaver who may be starting university, an apprenticeship or even their first job. So here, Which? takes a closer look at CTFs, how you can track accounts down, and other ways to save for your children’s future.
What are child trust funds?
An estimated 6.3m CTFs were set up between 2002 and 2011 to encourage young people to become future savers. If a parent or guardian was not able to set up an account for their child, HMRC opened an account on the child’s behalf. All deposits were tax-free.
Anyone – parents, family and friends – can pay in up to £9,000 a year until the account reaches maturity when the child turns 18. At this point, they can either withdraw the funds or reinvest the money into another savings product.
If nothing is done with the money the CTF provider will either transfer it to an Isa, if they offer one, or they will transfer it into a 'protected account' until the account holder gives further instructions. It will remain tax-free.
There are three types of child trust:
- Cash child trust fund: Similar to a savings account at a bank or building society, you can deposit money into the trust fund whenever you want, up to £9,000 a year.
- Stakeholder child trust fund: Money in this type of account is put into a wide mix of stock market investments and charged based on the value of the fund and capped at a maximum of 1.5% a year. HMRC will have opened this type of account on the child’s behalf if their parent failed to open a child trust fund account within a year of receiving a payment voucher.
- Shares-based child trust fund: These types of accounts allow you to either pick an investment fund to put your children's savings onto the stock market, or pick your own investments.
No new CTFs were opened after January 2011, as the savings product was replaced with Junior Isas.
How to track down lost CTFs
If you know where a CTF is being held, you can contact the provider directly.
If you don’t know the account details, you can ask HMRC to find the CTF provider by filling in an online form. To do this, you'll need to follow these steps. You'll need to have set up Government Gateway account.
HMRC will send you details of the CTF provider by post within three weeks of receiving your request.
Alternatively, the Share Foundation can also help you find a CTF. You might find this useful if your provider has changed, or if you grew up in care.
Should you move a CTF to a Junior Isa?
From the age of 16, a child can legally take over responsibility for their CTF and make decisions about the fund – such as switching to another provider, or transferring to a Junior Isa. Although they can't withdraw any money until they turn 18.
Parents may want to switch their child's savings before then to take advantage of higher interest rates and a wider choice of providers in the Junior Isa market. Junior stocks and shares Isas also have the advantage of lower annual fees and a wider range of investments.
For an idea of the top rates currently available on restriction-free Junior cash Isas, take a look at the table below:
| Account | AER | Terms |
|---|---|---|
| Bath Building Society Junior Cash Isa | 5% | £1 minimum deposit |
| Skipton Building Society Junior Cash Isa | 4.25% | £1 minimum deposit |
| Darlington Building Society Junior Cash Isa | 4.2% | £1 minimum deposit |
| Coventry Building Society Junior Cash Isa | 4.15% | £1 minimum deposit |
| Beverley Building Society Junior Cash Isa | 4% | £1 minimum deposit |
Source: Moneyfacts. Correct as of 25 May 2023, but rates are subject to change.
To transfer to a Junior Isa, you'll need to ask the Isa provider for a Junior Isa transfer form, and provide the CTF details.
Once you've submitted this to your new Junior Isa provider, it will carry out the switch for you. The switch should be completed within 30 days, and the CTF will then be closed.
- Find out more: Junior Isa rules and allowances
Other ways to save for your children’s future
Junior Isas aren’t the only option for parents wanting to save for their children’s future. Here are three other ways to save:
Children’s savings accounts
Many banks and building societies offer savings accounts specifically for children. You can set one up on behalf of a child with as little as £1 and they can start managing it from the age of seven.
There are two types of accounts available for children: regular savings accounts or instant access.
Regular savings accounts require you to deposit cash every month and are designed to encourage young people to get into the habit of saving. They usually run for a set period of time too – for example, 12 months.
Instant access offers more flexibility, allowing savers to deposit and withdraw money at any time. Interest rates, however, tend to be lower than regular savings accounts.
NS&I premium bonds
Anyone aged 16 or over can buy premium bonds from National Savings & Investments (NS&I) and you can buy them on behalf of a child or grandchild, giving them a chance of winning up to £1m.
The minimum investment is £25, with a maximum holding of £50,000. Children can take charge of managing their premium bonds when they turn 16.
However, if you are looking for guaranteed growth on the cash being saved, premium bonds are not the way to go. Even with average luck, someone investing £1,000 will likely win nothing over the course of a year.
- Find out more: premium bonds – are they worth it?
Children’s pensions
It's never too early to start saving for retirement. You can help a young person build their savings by opening a pension fund that they can access when they reach retirement.
Pensions can be opened for a child anytime from birth until they turn 18, and although only a parent or legal guardian can start one, anyone can contribute once it's up and running.
Unlike adult self-invested personal pensions (Sipps), which let you pay in up to 100% of your earnings every year and qualify for tax relief on contributions up to a maximum £60,000, the junior Sipp allowance for the 2023-24 tax year is just £3,600.
You have until 5 April 2024 to use the current annual allowance. But you don’t have to pay in this much: most providers let you contribute as little as £25 a month.
- Find out more: how to save for your children's future
