Did you know that your child might have over £2,000 held in a forgotten bank account?
In 2005, the Labour government set up an initiative called the Child Trust Fund. It allowed both the government and also parents to put money into a special account for their children, provided they were born after 1st September 2002.
Research by OneFamily suggests that in 2018 many of these accounts hold, on average, over £2,000. However, as many as ⅙ of children born between 2002-2011 are missing out because their accounts have essentially been forgotten about (i.e. classed as “addressee away”).
Could your child be one of them?
The Child Trust Fund
The scheme was set up by the UK government to assist parents with saving for their children’s future. Each account was gifted with a £250 voucher to get it started, with children from the least well-off households getting as much as £500.
The Child Trust Fund (CTF) was also set up so that each child would receive an extra voucher once they turned seven years old. Consequently, there are many CTF accounts currently sitting around with over £1,000 in them due to the voucher contributions and interest growth.
This is the case even in cases where parents did not know about the CTF scheme, or put any money into their child’s account themselves. So, if your son or daughter was born between 2002-2011, it’s worth checking to see if they have a CTF with potentially hundreds of pounds in it. That would be a great way to send them off to university, or for them to put towards a car!
Bear in mind that the CTF was closed by 1st January 2011 and replaced with the Junior ISA, which the government does not contribute to. So, if your child was born after this date they will not have a CTF waiting for them with cash savings inside it.
You should also be aware that children born after 1st August 2010 and before 1st January 2011 should not have received the second voucher from the government, so their CTF is likely to be smaller than children born between 2002 and 2010 with a CTF.
If your child currently has a Junior ISA, then it’s worth checking their CTF as well – you’ll be able to transfer the fund into the ISA for your child to enjoy tax-free savings.
How to find a lost CTF
It is thought that over £1 billion is currently lying dormant in unused CTFs. With a bit of digging, however, parents should be able to track down any funds on behalf of their child without too much trouble.
You will need to sign into the government’s tax portal here to start the process. You will need to submit your own information as well as that of your child, so the government can find the correct details you are looking for.
This portal is where you can formally request HMRC (HM Revenue & Customs) to provide details about where the CTF is, and how it can be accessed. Normally you should get an answer within about 2 weeks.
Tips about how to use a CTF
Once you find your child’s lost CTF, bear in mind that they cannot withdraw any money until they turn age 18. From aged 16, however, they can take over management of the account.
How much will the account contain? That depends. If you contributed to it, then that will make an obvious difference. The original amounts you put in are likely to have grown due from tax-free compound interest as well, which in some cases has produced returns of over 100%.
That means that if you have not contributed to the CTF, then your child could have over £1,000 in their account. If you did put money in, then they could possibly have over £2,000.
There are a few options open to you, regarding how to deal with the money in your child’s CTF on their behalf before they turn 16. As mentioned above, you could transfer the money into a Cash Junior ISA. Assuming the CTF is not invested in stocks and shares, you will likely find a better interest rate here. Of course, another options would be to continue adding to the CTF for the remaining years. This could make a big difference to the final amount when the fund is eventually withdrawn by your son or daughter.
Regardless of what you decide, your child will have full access to and control over the account once they turn 18. So it would be a good idea to talk to them about how that money could be used. Technically, at 18 they are now an adult and can spend it on whatever they like. However, few of us know how to sensibly spend thousands of pounds at that age!
Sitting down and talking with them might help them put their money to good, practical use in light of their future. Perhaps a decent, new car might be a better option than blowing £2,000 on an extravagant summer holiday with your school friends before starting university! If they aren’t going to spend it for a number of years, then they might even consider putting it into a stocks and shares ISA to grow the amount (tax free) through a more competitive interest rate.
If you would like to talk to a financial adviser here at Cedar House about your current situation and goals, then we would be delighted to start that conversation. Get in touch today to arrange a free, no-commitment consultations with a member of our team. We look forward to your call.