Using Child Trust Funds

Preparing for your child's future is important. If your child was born on or after 1 September 2002 and you are in receipt of Child Benefit for them, they will be eligible for a Child Trust Fund (CTF) account. The CTF was introduced by the previous government to help give children a lump sum to start off their adult lives when they reach 18.

Deciding between a stakeholder or non-stakeholder Child Trust Fund for your child will be down to personal preference. The stakeholder CTF option has been the most popular choice among parents. This option aims to maximise the account's potential for returns by linking investment to company shares from different companies - so to spread risk across a wide area and hopefully lead to long-term growth. Starting when your child turns 13 their money will be moved gradually to lower-risk investments with the aim of limiting the effects of a possible fall in share prices as they approach 18.

Children in families moving permanently to the UK could also be eligible for a Child Trust Fund, if their parents qualify for Child Benefit. Muslim parents can also find Child Trust Fund options suited to their needs, including a stakeholder account designed to adhere to Islamic Shariah Law by linking investment only to companies that follow its principles.

However, some parents may decide a stakeholder CTF isn't right for them. If so, there are other options available, including Non-stakeholder cash accounts, and Non-stakeholder shares based accounts for which the help of a financial adviser is likely to be advantageous.

Whatever type of Child Trust Fund you decide is best suited to your child, you can help them look forward to greater benefits later in life if you add money to the account. Since their introduction by the Labour government in 2005, Child Trust Funds have been embraced by families across the UK, with a very large proportion making voluntary contributions. The maximum currently allowed is £1,200 a year.

As the aim of the scheme is to assist all children to have a financial head start into adulthood, those with disabilities or in Local Authority care benefit from additional government contributions to their account.

The decision which type of Child Trust Fund to set up, and with which provider, is an important one that requires a great deal of thought to endeavour to get the best possible deal, to aim for the greatest rewards for your child once they turn 18. Choosing between a stakeholder CTF or a non-stakeholder cash or shares option could mean a real difference down the line and is something that should be considered carefully before signing up.