Child Trust Funds were launched for the first time back in 2002, and come September 1, the first people to get the accounts will turn 18. The children’s savings accounts were made available for children born between September 1 2002 and January 2, 2011, and from next month, HM Revenue and Customs (HMRC) says 55,000 accounts will mature each month – until 2029.
Each year, a total of more than 700,000 accounts are to mature, HMRC figures show.
The amounts in the accounts will vary, with some households having saved the money in a Cash Child Trust Fund, while others may have invested the cash via a Stakeholder Child Trust Fund or a Shares-based Child Trust Fund.
The Money Advice Service explains that at the age of 16, the young person can legally take over responsibility for their Child Trust Fund account.
It’s at this point that they can make decisions about the fund.
However, it’s only when they turn 18 that they can access and withdraw the money.
And, as these accounts mature, the holders will face several decisions regarding what to do with the accumulated money.
“Child Trust Funds have finally come of age and are starting to mature next month, but for teenagers – or indeed anyone – getting a windfall like this can be daunting,” commented Adrian Lowcock, head of personal investing at Willis Owen.
“There are lots of options to consider when it comes to how to use the money.
“Some may want to spend it, and others may want to invest it to make more money for their futures.”
However much may be in the account, Mr Lowcock has suggested there are five key questions and considerations which CTF holders should consider prior to taking any action.
And, among them, is a warning for savers to do their research when it comes to interest rates.
Look for the best rates
“Many holders may wish to put their money in a Cash ISA, rather than take any stock market risks with it,” said Mr Lowcock.
“For those so inclined, it’s vital to shop around to make sure they get the best rate possible, especially as savings rates on offer are so low currently.”
Stick or twist?
“It is up to the account owner to give the existing Child Trust Provider an instruction on what they want to do with their Child Trust Fund when they turn 18,” he continued.
“The holder can transfer the CTF to an ISA and continue to save or invest, and they can opt to move away from their current provider if they wish to.
“Any matured accounts will be transferred by the provider into either a Mature CTF, Cash ISA or Stocks and Shares ISA.
“The tax benefits will be maintained but the underlying savings or investments may not be suitable for the holder.”
Make sure you get what you are owed
“All you need to track down a CTF account is your National Insurance Number which you should receive on your 16th Birthday,” commented Mr Lowcock, before pointing out HMRC’s online “Find a Child Trust Fund” service.
Make sure you are happy to withdraw the money if you opt to do so
“Recipients should consider their options carefully before deciding as to whether to withdraw the money or not.
“While it remains in the CTF or an alternative tax-efficient wrapper like an ISA you will not pay tax on it, so think twice before just taking the money out.
Have a plan
“Ask yourself whether you need the money now, and if not then decide when you think you will need the money.
“If it is longer than five years, consider staying invested as the money could grow and help you get a deposit for a house, for example.”