One of the many difficulties parents face when they are bringing up children is to find the time to research and investigate how best to provide for the future financial security of their youngsters. Without question it can be a daunting task. The jargon and complexity of the investment world are difficult for many parents to understand and it is tempting to put off important decisions that may have a vital influence on their outcome of their saving efforts in the future. The purpose of this article is to shed some light of the basic steps that parents in the UK need to look at when investing for their children.
One of the things that an unwary mother or father may not be aware of when looking at how to invest for their children is that it is possible to save without paying tax on the interest you earn. This will make a major difference to the amount that the child will receive when he or she is older. One of the best ways that parents can achieve this is to invest in a Child Trust Fund. The Child Trust Fund (CTF) is a savings and investment account for children.
The Child Trust Fund was introduced by the British Government with the aim of ensuring every child has savings at the age of 18, helping children get into the practice of saving whilst teaching them the advantages of saving and helping them grasp the benefits of personal finance and saving.
The Government gives a free voucher worth £250 to all newborn children that receive Child Benefit. It is possible to invest the voucher in a Child Trust Fund (CTF) account on behalf of your children with one of a number of carefully-selected financial organisations. One f the most well known of these is the Scottish Friendly. The Child Trust Fund will mature when your child reaches the age of 18 providing them with a lump sum at a turning point in their lives when many of them will be looking to spread their wings and leave home or go to University.
Your child will automatically get the Government’s free £250 voucher (and an additional payment of £250 for children in families with low incomes who receive Child Tax Credit), which will get your child’s savings off to a flying start. But you, or friends and family, can really help by adding extra money. You can add to your child’s account by up to £1,200 each year. Adding extra money can help make the fund grow even more.
There is no restriction on what the money can be used for. As the account belongs to the young person when they reach 18, the money is theirs to use as they see best. The government has stated that it will be possible to put the entire Child Trust Fund into an ISA to keep the tax-free status of the investment. However, if the Child Trust Fund is withdrawn as cash, the tax advantage will be permanently lost.
Richard Robertson lives in the UK and is working in London
Child Trust Fund
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