Have child trust fund accounts been worthwhile?

Every baby born after 31 August 2002 received at least £250 until January 2011. How has their money fared?

Millions of children who have money in child trust fund accounts have enjoyed mixed fortunes.

Someone who played it safe and put the £250 cash given by the government into a Nationwide building society cash CTF when they were first launched in April 2005, and then didn’t add another penny, now has a fund worth £320. That compares with the average £350 that someone who put the money into a so-called “stakeholder” stock market-based CTF would have. However, the latter figure masks wide variations.

Under the CTF scheme, every baby born after 31 August 2002 received at least £250 in the form of a voucher from the government. With stakeholder accounts, the child’s money is predominantly invested in shares. CTFs were scrapped by the government in January 2011 and replaced by Junior Isas.

We asked Investment Life & Pensions Moneyfacts to look at how some of the leading stakeholder CTFs have been doing. It looked at how much funds were worth this month, based on a £250 investment in April 2005. Its figures show one of the best performers so far has been the FTSE All-Share Tracker fund offered by F&C Investments, which has turned £250 into £392. The Legal & General UK Index fund has grown that to £387.

The standard stakeholder CTF from Family Investments, which describes itself as “the UK’s favourite child trust fund provider,” with 1.3m accounts, has only turned £250 into £326, according to Moneyfacts. But at least it’s more than the £281 achieved by Family Investments’s ethical stakeholder CTF.

Many parents decided to put their offspring’s money into a cash CTF offered by a bank or building society. When Guardian Money looked this week, we found a huge variation in the interest rates being paid. Any child whose parents opted for the CTF account offered by Stoke-on-Trent-based Hanley Economic building society can give mum or dad a pat on the back, as this is still paying 5%.

Furness and Earl Shilton building societies are paying 3.05% and 2.85%, according to Moneyfacts. Of the bigger providers, Yorkshire building society is paying 2.3% (3% for the first 12 months), and Skipton, 2.65%.

Britannia, part of the Co-operative Bank, originally offered a 6% interest rate – but this has fallen to 1.05% (for accounts opened after 2 January 2009, a 1% bonus applies for two years, lifting the rate to 2.05%). Nationwide pays 1.1%, with a 1% annual bonus for accounts topped up by £240-plus a year.

One of the big problems for parents of children with CTFs is you can’t move into a Junior Isa account offering a better rate of interest. Women’s financial website savvywoman.co.uk says 95% of voters in a poll said you should be able to transfer CTFs into Junior Isas.

Rupert Jones

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