Child trust fund explained

A young boy putting money into a piggy bank

Child Trust Funds are exclusive tax-free savings accounts that were set up for children by the Government back in 2005, but they were subsequently axed on 1 January 2011.

In this guide, we tell you everything you should know about Child Trust Funds accounts, including how to trace and gain access to one when you have no records.

What is a Child Trust Fund?

A UK government Child Trust Fund (CTF) is a special type of tax-free savings account that was set up for children by the UK government primarily to:

help and encourage all children to save
give all children a nest egg to rely on as they embark on adult life

A government Child Trust Fund £250 starter payment was generously sent to all new parents or guardians of children born between 1 September 2002 and 2 January 2011, who were in receipt of Child Benefit. Some parents or guardians on a low income received a double payment of £500.

If a parent or guardian failed to use the government’s starting payment voucher of £250 or £500 within a year, then HMRC would have set up an account for your child on their behalf.

Sadly, this liberal, tax-free money-saving scheme is no longer available to newborns, but if you have an existing fund, you are still able to access your funds.

The scheme was replaced by tax-free Junior ISAs but parents or guardians have to take the initiative to open a Junior ISA with their own funds as the government no longer provides starter payments or sets up a savings account if you don’t.

How does a Child Trust Fund work?

A CTF works by allowing parents or guardians to squirrel money away for their child’s future in a completely tax-free savings account, meaning that any interest accrued or capital gains are not taxed.
A parent or guardian cannot withdraw or use the money; the funds in the account solely belong to their child.
A child with a trust fund is entitled to take over legal responsibility for it when they turn 16 years old which means they can choose to transfer the funds to another account (i.e. a Junior ISA) or another provider, but they cannot withdraw the funds.
At the age of 18, the child/young adult is legally entitled to access and withdraw the funds and do whatever they please with the money.

What is a Child Trust Fund for?

A CTF is only for children born between 1 September 2002 and 2 January 2011.

The government set up the scheme to introduce, encourage and instill the habit of saving money from an early age and to give young adults a financial springboard as they enter adulthood.

Note: If a child is devastatingly diagnosed with a terminal illness before they're 18 years old then they are allowed to access and use the funds early.

Who puts money in a Child Trust Fund?

Anyone is able to pay money into a Child Trust Fund account (i.e. parents, guardians, grandparents, family, godparents and friends, etc) up to a maximum (tax-free) limit of £9,000 each year - each financial year starts from the child’s birthday.

How much money do you get from a Child Trust Fund?

How much money your child receives will depend on what contributions have been made to the fund until it expires.

You are allowed to save up to £9,000 per year, tax-free, and any contributions above this amount will be taxed.

According to a report by the Institute of Fiscal Studies, the average CTF value for children born between September 2002 and August 2003 is approximately £650.

The same report revealed that over half (55%) of those CTFs have a balance of £500 or more and almost one quarter (23%) have between £1,001 to £5,000.

The pros and cons of a Child Trust Fund vs a Junior ISA savings account

There are really no major differences between a Child Trust Fund and a Junior ISA savings account - they both share the same tax-free advantages without affecting benefits or tax credits.

The only real advantage of having Child Trust Fund accounts is that you would’ve received a contribution from the government if your child was lucky enough to be born in the qualifying years.

The main advantage of a Junior ISA is that interest rates on a Child Trust Fund are now very low, whereas Junior ISAs tend to have slightly higher interest rates.

Another bonus with a Junior ISA is that it will automatically transfer to an adult ISA when a child turns 18.

So it's worth comparing the current rate of interest on an existing CTF against the interest rates currently being offered on Junior ISAs and by other CTF providers.

The good news is that from 6 April 2015, the government gave permission to all CTF holders to transfer all funds held in a CTF to a Junior ISA. So if you find out you’d get a better return on your savings by swapping your CTF for a Junior ISA, you should arrange a transfer as soon as possible.

You might want to read: Are Junior Savings Accounts worth it?

How do I find my Child's Trust Fund?

To find your child’s trust fund you will need to:

Fill in a form online to ask HMRC where the CTF account was originally opened
Create and set up a Government Gateway account (you’ll be prompted and given the opportunity to do this when you fill the HMRC form in online)
Provide your child’s Unique Reference Number from a CTF statement or
If you’ve lost the CTF paperwork you’ll need to provide your child’s National Insurance Number which all children are allocated around the age of 16

Alternatively, you can also apply by post - click here and scroll down the page for full details.

How to gain access to your Child Trust Fund

If you’re a parent or guardian of a child under the age of 18 with an active CTF, you will need to contact the CTF provider to gain access to your child’s CTF.

However, ‘access’ to your child’s CTF will solely be for the purpose of you either switching Child Trust Fund providers or transferring the CTF funds to a Junior ISA. As a parent or guardian, you cannot access the account funds or make any withdrawals.

If you’re the child/adult who the CTF belongs to and are aged 18 years or more, then you can gain full, unrestricted access to your CTF by contacting your CTF provider who will need to verify your ID. (See ‘How do I find my Child’s Trust Fund?’ to find out the name of your provider.)

Once you know the name of your provider, you can choose to either:

Change providers
Reinvest and transfer the funds to a different financial product (i.e. an adult ISA)
Spend the money

How long does a Child Trust Fund take to transfer?

Transfer of a CTF to a Junior ISA or a new provider will vary between providers but, in accordance with government guidelines, should take no more than 30 days.

What happens to a Child Trust Fund at 18?

When a child turns 18, they can access their trust funds and can choose to either:

withdraw and spend the money however they see fit
transfer the funds to a different financial product such as an adult ISA
transfer the funds to an adult savings account

Should I get a Child Trust Fund?

Unfortunately, setting up a Child Trust Fund is no longer possible as the scheme ended on 1 January 2011.

However, you can now instead set up a tax-free Junior ISA savings account to build a nest egg for your child but the government no longer makes any contribution towards a child’s savings.