Child trust funds: what are they and how can I access mine?

Many people born between 2002 and 2011 have savings accrued through a child trust fund (CTF), the scheme launched by Gordon Brown’s government.

Every month, up to 55,000 of them receive a nest egg, but many others know nothing about it. 

Here we explore CTFs, what they are, how you can locate a lost one and what you can do to switch savings now this type of fund is no longer available. 

What exactly is a child trust fund?

The idea of the CTF was to provide some core savings for everyone by the time they reached 18. £250 was contributed by the government when a child was born, then again when they reached the age of seven.

For low-income families, this amount was doubled to £500 on each date. 

The CTF scheme ended in 2011, and parents were allowed to transfer money into a junior individual savings account (ISA) instead. Despite this, around 6.3 million CTFs still exist. 

Learn more: What is a junior ISA and how does it work?

How did a child trust fund work?

When child trust funds were introduced, parents or guardians of eligible children received a £250 voucher (or £500 for lower income households) from HMRC to help set up a CTF account in the child's name.

If the voucher was not used within 12 months, HMRC opened a CTF on the child's behalf so the funds would still be available.

The money in a CTF belongs to the child and is inaccessible until age 18.

At 16, the child can manage their CTF, such as switching providers or transferring to a junior ISA. To do so, they simply contact the CTF provider.

Once the account holder turns 18, they gain full access to the CTF and can withdraw the funds as desired.

Were there different types of CTF?

Yes. Three different types were available, which were:

Cash child trust fund

Much like an ISA, these accounts earned interest tax-free.

Stakeholder child trust fund

Here, the money was spread around a range of stock market investments.

To minimise risk to the fund, money was carefully moved into lower-risk investments when the child reached 13, and charges were limited to 1.5% a year.

Shares-based child trust funds

This type of CTF puts money into the stock market through funds chosen by the parents.

Unlike the stakeholder CTF, funds are not protected similarly, so they can be expensive.

This is not always the case, though, and they can be very cost-effective.  

Why are CTFs no longer available? 

CTFs were withdrawn as part of the government’s austerity measures in May 2010 following the financial crisis of 2008.

They were then replaced by junior ISAs. By stopping the scheme, the government estimated they would save up to £520 million in 2011–12.

In the financial climate of the time, interest rates on some CTFs had fallen significantly, and charges were high when compared with a junior ISA. 

So, what is the alternative today? 

The direct alternative for children who have not yet reached 18 is the junior ISA.

There are plenty of good reasons for considering this option: 

• There are loads to choose from.
• The fees are lower than on CTFs at around 0.5%–1% instead of 1.5% on a share-based CTF.
• You benefit from a wider span of potential investments.
• You get much higher interest rates — a junior cash ISA offers nearly 5% at the time of writing.
• You can have more than one type of ISA whereas you couldn’t do this with CTFs.

Children can make the switch to a junior ISA themselves if they’re 16 or older, or ask their parents to sort it if they’re younger.

It’s important to remember that you can’t have a CTF and ISA at the same time. Money in a CTF must be moved within 60 days of opening an ISA. 

Moving your CTF into a junior ISA 

Here are the steps you need to take when moving a nest egg from a CTA into your chosen junior ISA. 

• First of all, find out how much money is in the trust fund and check if there’s an exit charge.
• Now, decide on the type of ISA you’d like to go for. A do-it-yourself stocks and shares ISA allows you to choose investments yourself.
• A ready-made junior ISA provides a choice of investment portfolios that are created and managed by the provider. 
• Once you’ve made a decision, you’ll need to complete a junior ISA form with details on your child and the CTF. 
• When opening a stocks and shares ISA, you’ll need to say where you want money invested.
• Once everything is submitted, your new provider will do the switch for you within 30 days, and the CTF will be closed.

How do you find a lost CTF?

There could be hundreds of thousands of CTFs that are simply lost because their owners don’t know about them.

If you think this might include you, all you need to do is contact HMRC.

They’ll ask you some questions and then track down the account. Once they’ve done this, you can contact the provider personally and access the CTF. 

If you don’t get in touch with the provider of your CTF account before your child reaches 18, don’t worry.

These are tax-free savings accounts, and the money will have been moved around so that you haven’t been losing out on interest and returns. 

How to access a child trust fund at 18

If you're 18 or over your child can access and withdraw the money in their child trust fund.

Your provider will contact you before this point arrives if they have the correct details.

Essentially, the main options now are: 

• Simply withdraw all or some of the money as cash.
• Transfer a cash CTF into a cash ISA or a stocks and shares CTF into the equivalent ISA. 
• Open an adult ISA, savings or investment account.

How long does it take for a child trust fund to transfer into my bank account?

The time can vary depending on your provider, but you'll usually receive the funds within five working days.

If the money is being sent by cheque, this could take longer, depending on the post.

How can a financial adviser help?

If you are in any doubt about what to do with your savings, either before or after your child reaches 18, you may wish to speak to a financial adviser who can provide some professional guidance and support.

Unbiased can connect you to a financial adviser today.