What is a stakeholder CTF account?
All of the CTF providers offer stakeholder accounts. These invest in shares in companies. The Government has made certain rules for these accounts to reduce the risk of investing in shares.
- Historically, over an 18-year period, accounts that invest in shares almost always do better than savings accounts.
- Money cannot be invested in just one company but must be spread across different companies. This means there is less risk if one company does badly.
- When your child turns 13 money invested in shares is gradually moved to more secure investments to help safeguard your child's money.
- The charge for running the account depends on the provider but is limited to no more than 1.5% a year of the value of the fund, i.e. £1.50 for every £100 your child has invested. (Charges for other types of account vary from one provider to another.)
- Shares can fall in value as well as rise so you could get back less than you put in.
- The CTF provider has to allow you to pay in amounts from as little as £10.
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What is a shares (non-stakeholder) CTF account?
With this option your money is invested in companies' shares, so it grows if they do well. These accounts do not have the same rules, to reduce risk as stakeholder accounts.
- Historically, over an 18-year period, accounts that invest in shares almost always do better than savings accounts.
- However, you must remember that although investments in shares have performed well in the past, it doesn't mean that they will always do so in future.
- Shares can fall in value as well as rise so you could get back less than you put in.
- There is no limit on the charges your CTF provider can make for running the account.
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What is a savings CTF account?
This is the cash option as it does not invest in shares — your child will get back the money put into the account, plus some interest.
- Remember you might not get as much return as you would with an account that invests in shares.
- Although you will earn interest, money in the account can lose value because of inflation. This is because prices usually rise each year - which is why £20 won't buy as much today as it did ten years ago.
- You will not see a charge on your child’s statement. Your CTF provider will take their costs into consideration before setting the interest rate.
- There is no limit on the charges your CTF provider can make for running the account.
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If shares and stakeholder accounts both involve investments, what's the difference between the two?
Although both types of account invest in shares, the Government has made rules for stakeholder accounts to reduce the risk. For example, money begins to be moved into safer investments and assets when the child reaches 13. The stakeholder account also has a charge cap limited to no more than 1.5% and all providers must accept a minimum contribution of £10 into a stakeholder account (though they can accept less if they wish).
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Which is the right CTF for my child?
How you invest your child's money is very much down to you and the amount of risk you’re willing to take. Choosing an account that invests in shares could mean your child’s money grows to a larger sum. But you could get less than you put in. This toolkit should help you to make that decision. If you’d like some extra advice you can always speak to a voluntary organisation, such as your local Citizen’s Advice Bureau, or to an Independent Financial Adviser (IFA). To find an approved IFA near you go to www.ifap.org.uk – but be aware, there may be a charge for this.
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