Make the most of Child Trust Funds
Babies born after 1 September 2002 receive a one-off £250 voucher from the government, with a further £250 top-up for lower-income families. Parents can then use it to open a child trust fund account which can either be held in cash or invested in the stock market.
There are several key ways you can make the most of your child's savings:
1. Check the value - you should check the latest value of the child trust fund on a regular basis, particularly if you're putting in extra contributions yourself. This is the only way to make sure you're happy with performance so far.
2. Top-up the child trust fund - if you really want to make sure your child has a decent nest-egg when they reach 18 (the account matures on your child's 18th birthday), then try your best to keep the account well-funded. In addition to the government's contributions, you can put in an extra £1,200 a year - or £100 a month.If you can afford to, consider investing the Child Benefit you receive for your child in their CTF. This will boost the value without it costing you a penny.
3. Switch if you're not happy - if you're not happy with how the fund is progressing, remember you always have the right to change your mind. This is true no matter where you have chosen to invest the voucher.
Switching is easy. You can change the provider who manages the fund, or just alter the way the money is invested.
If you want to change providers, all you need to do is sign up with the new provider. They will then let the existing provider know.
4. Think twice about cash - it probably seems like the safest option to put your child's savings in a cash fund. But with savings rates at historically low levels, and expected to stay that way for some time; the chances of getting a decent return from cash have narrowed.
I would only suggest you stick with cash if you're really risk averse. This is because shares have always been shown to generate better returns over the long term than a traditional savings account, and offer the best prospects for future growth. Although this can't be guaranteed.
5. Invest in a tracker - if you're new to investing, you could think about putting the money into an index-tracking fund. An index tracker 'tracks' the performance of the index it's based on. In other words, a FTSE 100 index-tracker, for example, invests in all the top 100 UK quoted companies. The idea is that the value of the fund will match the performance of the index as closely as possible.
A tracker allows you to invest in the stock market without the responsibility of picking investments yourself.
If you're a more experienced investor, some providers will enable you to invest in different markets all over the world. Some will allow you to invest in shares directly, but this means you'll be taking on more risk. Still, there is then a greater potential for reward.
6. Don't panic about short-term dips - the stock market can be volatile, so don't worry about temporary dips in the value of the fund. Remember when shares prices fall, this is actually the ideal time to buy because your contributions will purchase more for the same amount than before. But when the market recovers, these extra shares will be poised to take off in value.
To find out which sort of CTF might be right for you, read Make the most of Child Trust Vouchers or get one of these free brochures.
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