Money

Managing your money

Trust funds for your grandchildren

Holly Thomas

Grandparents are being urged to take advantage of savings tax breaks for their grandchildren this Christmas to give them a bumper birthday when they reach 18, writes Holly Thomas

With children receiving an average of £330 worth of presents on December 25, experts say you should resist temptation to spoil them with toys and chocolate, and contribute to their Child Trust Fund (CTF) account.

All children born since September 1, 2002 are eligible for vouchers worth £250, or £500 for lower-income families, which parents must invest for them in a CTF.

The Economic Secretary, Kitty Ussher is urging families to contribute to accounts following new Treasury figures showing only around a quarter of CTFs are being topped up.

But a recent report by TISA, the trade organisation for CTFs, said just under a third of accounts are being topped up.

"Few toddlers are likely to thank you immediately for paying money into their CTF, but they may be much more grateful by the time they hit 18 when they will have enough cash for a car or deposit for a house," said Jason Hemmings at Albannach Financial Management.

"With school and university fees rising and the housing ladder becoming more difficult to step on to, your own children will thank you too, for any help you can offer."

It's important for family to ensure the child's money is invested in the best possible account.

There are three options for investing the vouchers. The most basic offering is a cash account run by a number of banks and building societies.

For the best rates check national press for "best buy" tables or comparison sites on the internet. Watch out for "bonus rates" which mean that the initially attractive interest rate will drop after a certain period.

A stakeholder account - the second option - offers access to the market via a range of funds, most of which track an index, such as the FTSE 100. The cash is switched into less risky investments when the child is aged between 13 and 18. Charges cannot exceed 1.5 per cent.

The most risky of the three options is a purely share-based fund, with no limits on charges. There are about 40 providers of this kind of account.

It remains a concern that many people do not opt for the benefits of long-term investment in equities.

Historically, stockmarket-linked investments have outperformed deposit accounts over longer periods.

Parents who feel they need guidance should seek the help of an independent financial adviser. Those who have already invested but think have chosen the wrong fund need not worry.

One of the benefits of CTFs is that savers can switch providers and change the type of fund at any time without penalty.

To contribute to an account, you need to get the CTF provider and account number, and simply deposit the cash or cheque. Some companies have direct payment systems so check the best way to send any cash.

It's important to check with the child's parents how much has already been contributed from others so not to exceed Revenue limits.

Visit: www.childtrustfund.gov.uk

* Holly Thomas is the deputy personal finance editor of the Daily Express and Sunday Express. Her opinions are her own and for general information only. Always seek independent financial advice.