CTF discussion area

westernpromise

dunstonh wrote:

You are talking about a reduction in yield due to charges of around 1%. That isnt exactly a worry and I'm not sure where you get these exit charges from.

No exit charges as yet AFAIK.

There is certainly no reason to say that the last 5 years on an equity CTF would perform worse than a cash based one.

Incorrect - as the default, all equity CTFs feature 'lifestyling' i.e. they switch out of equities and into cash and gilts in the last 5 years, so as to shelter any gains from a stock market crash. Despite the fact that no management is being done at that point, these products still charge the same management fee at that point, so you are assured of crummy performance.

Interest rates are not always going to be at this level. If inflation was to rear its ugly head again, then the stockmarkets tend to do quite well during that time. So you may get around 5% now but it could be 3% in 4 years time. If inflation is at 2.5% then you are only making a real return of 0.5%.

This cuts both ways. If inflation goes up, the only weapon the BoE has to control it with is the interest rate. Historically, there's a spread of ~5% between inflation and interest rates - lower when inflation is low, higher when it's high. Thus we have inflation today of about 2% and rates of 4.75%, a 2.75% spread, whereas in 1990 we had inflation of 9% and rates of 15%, a 6% spread which eventually succeeded in controlling it.

If inflation goes up by X, you would see interest rates rise by more than X in order to bring it back under control.

One of the reasons for the endowments fiasco was that we got used to high inflation, interest rates, and stock market growth. The three move substantially in sync.

Even with the recent stockmarket crash, the UK all companies sector (the average) would have doubled the money in 10 years. That would not have been achieved on a deposit style account.

Over the same 10 years, cash on deposit would have achieved ~72% growth even assuming you only got BoE base rate for it, which is pessimistic.

Had you achieved 7% but paid 1.5% fee, you'd have achieved....about 72% growth, oddly enough, yet clearly with a lot more risk.

Had you achieved BoE base plus 0.5%, which if you manage your deposit accounts effectively you can, cash would easily have outperformed equities.

Ten years is more than a short term trend, so rates this low may be a permanent, structural, benefit of 1980s reforms. Plus you have to look at the wider issues. The UK stock market has performed poorly in part because £50 billion has been taken out of it in tax on dividends to pension funds. I see no chance of this reversing and in fact suspect private pensions will be raided again, to fund a bigger pension for those with none and to fund the otherwise unfunded public sector final salary pension scheme.

So you do indeed need to take a long view, and mine is very bearish for UK equities.

dunstonh

Incorrect - as the default, all equity CTFs feature 'lifestyling' i.e. they switch out of equities and into cash and gilts in the last 5 years, so as to shelter any gains from a stock market crash. Despite the fact that no management is being done at that point, these products still charge the same management fee at that point, so you are assured of crummy performance.

Only the stakeholder equity CTF has lifestyling. The non-stakeholder version has this as optional. You are able to request that lifestyling does not take place either.

This cuts both ways. If inflation goes up, the only weapon the BoE has to control it with is the interest rate. Historically, there's a spread of ~5% between inflation and interest rates - lower when inflation is low, higher when it's high. Thus we have inflation today of about 2% and rates of 4.75%, a 2.75% spread, whereas in 1990 we had inflation of 9% and rates of 15%, a 6% spread which eventually succeeded in controlling it.

If inflation goes up by X, you would see interest rates rise by more than X in order to bring it back under control.

They also have monetary control and public spending which can influence inflation. However, interest rates is the highest profile and usually the quickest to take affect.

I cannot get my hands on the information now or recall the specifics but there was a report issued last year that showed that for the first time for many decades, interest rates were outstripping inflation. That would suggest that they didnt in earlier years.

poorcat

I originally posted the below on the old Child Trust Fund board a couple of days ago, but I think this is the right place for it now...

This what I'm probably going to do with the voucher:

My son (aged 2) already has a children's instant access savings account with Nationwide, which grandparents pay a total of £150 into a year, and we add any other lump sums from Xmas, birthday etc. Currently he has about £1,600 in there.

I don't want to risk grandparents' cash in a stakeholder or other shares-related account, but it's OK - Nationwide are offering a CTF savings account, currently with 5% interest, increasing to 6% if you pay at least £240 in a year. [This seems to be higher than the best CTF savings account interest rates suggested by Martin, but I've checked, and although the interest rate may change in the future, this doesn't seem to be just an introductory thing for the first year]

Originally I thought I'd transfer over all the cash in his normal savings account to the CTF one, and get grandparents to pay into that from now on. But I can't do that all at once because the max you can pay into the CTF in any one year is £1,200. Also, the £150 grandparents pay every year falls short of the £240 needed to get the higher interest rate.

So... I'm keeping his existing child account open, and have asked grandparents to continue paying the £150 into it. Once a year, I will transfer £250 over to the CTF. What is already in his existing account, plus future interest, will cover the extra £100. This way, we can guarantee getting the higher rate of interest every year.

Also, because the (currently 4.95%) interest on the ordinary child savings account is paid on December 31 and June 30, but the CTF interest is paid on his birthday (September 25), as long as this transfer happens between July 1-Sept 24, we will get two loads of interest on this £240.

Any other lump sums will go straight into the CTF as and when we get them. I know that if I put it in the savings account first I could make a double load of interest, but I want to keep things simple.

We may re-think this all in nine years when my son hits 11, as in theory he will then have access to his child saving's account, and the grandparents do like the fact the cash in the CTF can't be touched be him (or anyone else) until he's 18.

It seems a relatively hassle-free and risk-free way of making the most of the CTF. I'm always grateful for free money, but working out what to do without has been a bit of a pain in the bum! My system won't be best for everyone, obviously, but if this suggestion helps anyone else avoid the brain-ache I've gone through to work this out, it will have almost been worthwhile

maccaz

I have a 1 year old boy, I would like to know which is the best investment for him, and me, in simple terms.

Which do you think is the best if I can only add to it when I have spare cash?
Do all Banks/Building Societies offer the 3 different types of accounts?

Sorry for these stupid questions, but banking is a bit confusing for me

yeti_2

I haven't recieved a voucher yet, should I be concerned or are they on their way ?

Aloeabundance

Hi

I have a 3 year old and a 4 month babe - I haven't received info yet...

How do we spur things on?

THanks

Natalie

Spendless

Aloeabundance wrote:

Hi

I have a 3 year old and a 4 month babe - I haven't received info yet...

How do we spur things on?

THanks

Natalie

Mine just came in the post to me a few weeks ago. BTW your eldest will not qualify, it is only for children born from Sept 1st 2002 onwards.

Aloeabundance

Ah, well, that's okay her Grandmothers started a fund for her - I think putting away £10/£20 a month!

I'd do the same for him - so they each have that.

It's great!

Thanks!

Aloeabundance

Spendless,

How long after your baby was born did it arrive?

Ta!

Spendless

My daughter will be 2 at the end of March. I received the cheque a few weeks ago. I don't know if they are sending out in date order though.

I also have an older child who doesn't qualify. We have a savings account for him, as i want them both to have the same when they're older.

I must admit i'm reluctant to put much into the CTF as i don't like the idea of her going out on her 18th and blowing it.