Child Trust Funds discussion area

The_Grateful_Ghoul

Hi

My cheque is on it's way I am told and wife giving me a hard time on where is the best place to put the money.

Is Martin planning an update on this article soon?

Cheers

cloud_dog

Martin may give you a review of the cash accounts on offer but I do not think he will comment on investing in a stocks / shares option - financial advise and all that :0

I'm sure you could find out the best cash accounts by using one of the money websites (https://www.thisismoney.co.uk, https://www.moneysupermarket.co.uk, etc, etc).

cloud_dog

kissmekate_2

Hi Martin

Please could you just confirm if you are going to do an update to the CTF thread. Then I will know whether to wait for your info or to go ahead straightaway and invest the cheque.

Many Thanks
Kissmekate

westernpromise

I have some reservations about these equity CTFs generally.

Parents have the choice of putting the money into either an equity or cash CTF. All the equity CTF providers I have seen -- I haven't checked all 75 - charge 1.5% a year management fees on them, and indicate that they switch the fund into cash, starting from when the child is about 12. The rationale for this is that it reduces the risk of an abrupt loss of value late in the life of the investment.

The trouble with this is the 1.5% management fee is charged throughout, including those years when the fund has been switched into cash and there is no management being done. You are therefore guaranteed 1.5% per annum underperformance versus cash in the later years.

An equity CTF must anyway outperform cash by 1.5% every year for the first 12 years, to match the risk-free return available from cash. By my calculation, and I have assumed that at age seven the government will put another £250 in (they've not committed to any number as yet), an equity CTF has to outperform cash by another 1% on top of that for the first 12 years in order to offset the surefire underperformance built into its final years.

I've ignored any incremental contributions by relatives in the above. If you expect to put less than about £2,000 into a CTF in total, you should in fact put it into a child savings account anyway, not a CTF. It's just as tax free and the money's not locked away.

I'm sure that a few of the providers will manage to outperform cash by the necessary 2.5% every year for twelve straight years. I'm equally sure that a lot of them, possibly most, won't, and that I for one have no chance of spotting who'll be in which category. Given this, and the fact that equity CTFs face the risk of a market crash in the first 12 years, I'm not convinced the terms of equity CTFs price this risk in properly. All you get for the risk of losing money is the possibility of gains, but the first 2.5% are swallowed by the fee structure.

I've put my daughter's voucher into the Nationwide cash CTF at 5%.

Daedulus

Just read this: http://www.thisismoney.co.uk/saving-and-banking/article.html?in_article_id=397877&in_page_id=7

So come on Martin. I need guidance on where to invest.

rach1973

I am at a loss as where to invest my childrens money. I'm not going to pay the 1.5% to handle my money (that is such a cheek) Do I go for a basic savings account or gamble with the stocks????

Come on Martin - what do you suggest???

Thanks in advance.
Rachel

NinaM

1. Are parents going to be able to open CTFs for older children? Obviously without the government's £250 start-up.
2. Will children born after this round of voucher-sending be eligible for these £250 vouchers? And if so, how long after they are born will they be sent out?
3. Is the interest on the cash fund going to be much better than a normal child's savings account? And if not, where's the incentive in paying extra money into a CTF cash account than a normal child savings account?
4. How often will the interest be calculated?

isasmurf

NinaM wrote:

1. Are parents going to be able to open CTFs for older children? Obviously without the government's £250 start-up.

No

NinaM wrote:

2. Will children born after this round of voucher-sending be eligible for these £250 vouchers? And if so, how long after they are born will they be sent out?

This is not a 'round of voucher-sending'. It is a continuous process for all children born since 1 September 2002 until there is a change of policy. So vouchers will continue to be sent out probably until there is a change of Government.

NinaM wrote:

3. Is the interest on the cash fund going to be much better than a normal child's savings account? And if not, where's the incentive in paying extra money into a CTF cash account than a normal child savings account?

It's about the same I'd say. From what I've seen the few Cash CTFs around pay around the 5% mark, with an extra 1% bonus for a couple of years or for paying in a certain amount each year. The best paying childrens accounts as far as I'm aware pay just over 5%. The incentive, on the cash side is much lower than on the equity CTF. For cash CTF accounts the incentive will be that you can build up 18 years worth of £1,200 deposits and receive the interest on them tax free. Doing this outside a CTF is likely to take you above the '£100 gift to a child rule' which would mean the interest would be liable to tax at the parents tax rate.

NinaM wrote:

4. How often will the interest be calculated?

That would depend on the individual account. Most would probably calculate interest daily and pay it annually.

pud1

can anyone tell me with regards to the child trust fund whether the voucher i get which is apparently worth £250 is actually hard cash in the bank from day 1 or and I.O.U from this government saying that in 18 years time the government in power owes me £250

lipidicman

pud1 wrote:

can anyone tell me with regards to the child trust fund whether the voucher i get which is apparently worth £250 is actually hard cash in the bank from day 1 or and I.O.U from this government saying that in 18 years time the government in power owes me £250

Its credited in the account - if it was in 18 years time you would lose out on the interest - or the then govt might not pay!