A Guide to Child Trust FundsWith the launch of the Child Trust Fund (CTF), Babyworld recognised that parents might need some guidance on how they work.Children born on or after 1st September will receive a cash gift of £250 (£500 if your family has a low income) from the government - a useful financial springboard into adult life which aims to help them develop a lifetime savings habit. At least £250 worth of Government vouchers for your child! As David White, Chief Executive of Children's Mutual says 'We hope that the Child Trust Fund will encourage the four out of five parents who do not currently save for their child to start thinking seriously about preparing for their child's financial future'.
Managing your child's CTF account
How will my child's CTF account be started? It couldn't be simpler! If you're claiming Child Benefit you'll automatically receive a CTF voucher for your child early in 2005. What's a Registered Contact?Although all CTF vouchers will be sent direct to the person claiming Child Benefit, they don't have to manage the CTF account. Each account must be managed by a Registered Contact. This could be the person receiving Child Benefit or someone who is legally responsible for the child, for example a legal guardian or foster parent. Where could my child's money be invested?By 2005 it's likely that a range of financial services providers will be offering products suitable for CTF investment. While it's expected that there'll be various options in the market, all providers must offer a CTF 'stakeholder' product. Basically, this fund will:
The Government is determined that every child has a CTF. Once you receive your child's voucher you can present it to any approved provider. However, if you don't do so within 12 months, Inland Revenue will select a provider, open a 'stakeholder account' with them on your child's behalf and then send you the details. Who can contribute to my child's CTF?To help your child's CTF grow - you, your child, family or friends can contribute up to an overall total of £1,200 a year to their account. What happens when my child is 18?Each CTF ends when the child is 18. At this point your child will be free to spend their CTF money how they choose or to carry on investing it in a new savings plan. However, such plans may not benefit from tax-free growth. Why can't I control how my child spends their CTF money at 18?The thinking behind this is that the financial education your child will receive along the way will help them appreciate the potential and value of their CTF, so that they will use the money wisely. What could my child's CTF look like in 18 years' time?On its own, the initial £250 payment is expected to grow to around £500 in 18 years' time (assuming 5% growth a year).Which won't even cover a set of driving lessons (projected cost £1,248) let alone a deposit on a first home. However, if parents, family and friends were to contribute an extra £69 a month (equivalent to the monthly Child Benefit) over 18 years, your child could be looking at a much healthier £22,000 (assuming growth at 5% a year). Help! What if my child's not eligible for CTF?You can still take advantage of other tax-free savings options including ISAs, to prepare for your child's financial future. Why not check out other family-friendly Government benefits, for example Child Tax Credit, to see how they could add up? But whatever you do, it's important to start saving as soon as possible so that your child doesn't miss out on valuable investment time. Looking for a provider and find out more
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