Further information about types of account

Below is a list of questions that are answered in this section.

Questions

Answers

Q. Which is the best CTF account for my child?
A. This is up to you. Stakeholder accounts will be opened for those families who do not open accounts themselves as money is likely to do better invested in risk-controlled shares than in cash. In the past, investments in stocks and shares have always given a better return than cash deposits, over the longer term, although this is not necessarily a guide to future performance.

All providers will make available a stakeholder account, where the money is invested in stocks and shares. Providers will give you information about the CTF accounts they offer and you should discuss with them what your preferences are.

If you decide to choose a cash CTF account for you child, you will need to check interest rates on the account to make sure they are not going down, and actively manage the account by looking at what the best deals are and moving the account if necessary.

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Q. What is the best investment choice for my child?
A. Many things may influence your choice of what is best for your child. You should shop around to make sure you get a good deal, like you might with any purchase.

All providers must make available a stakeholder CTF account. This is because the Government wants all children to have the opportunity to benefit from the generally higher returns on stocks and shares over the longer term.

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Q. Who decides where the money in my child’s CTF account is invested?
A. You do. There are different providers and you should choose one that suits you best. To help you decide, you might want to think about:

• the rate of return on the account
• the more risky the investment, the higher the possible return but the higher the chance that you may lose some or all of your child’s money
• the less risky the investment, the lower the return, but the less chance that your child may lose money
• the reduced risks associated with the stakeholder account
• whether you have particular ethical or religious requirements
• whether or not you want an account somewhere convenient for you to pay in money over the counter
• whether you want to run your child’s CTF account online.

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Q. What happens to my child’s stakeholder CTF account if the stock market goes down, can I lose money?
A. Your child’s stakeholder CTF account will invest your child’s money by buying shares in companies. You can make money when those companies do well and the value of the shares goes up. But your shares may go down in value from time to time. When investing money for a long time, accounts that invest in shares almost always produce a better return than savings accounts.

The stakeholder CTF account is a long-term savings product and the Government requirements are that as a child’s CTF account nears maturity, assets will be moved out of stocks and shares into assets with lower risk and return profiles such as cash. This will reduce risk before maturity. Also, providers or fund managers will watch companies and will work to maximise returns invested in the stock market.  It is important to remember that although investments based on shares have performed well in the past does not mean they will do so in the future.

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Q. Can I open more than one CTF account and spread the money between different types of account?
A. No, each child has only one CTF account. But there are different CTF accounts so you will be able to choose the type of account you think best.

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Q. Does the Government guarantee the value of CTF accounts?
A. The Government does not guarantee the value of CTF accounts.

There will be different CTF accounts available to suit different needs. Providers will offer different accounts, such as savings accounts and accounts that invest in shares. You will need to pick the one that best suits your needs.

If you invest £500 in a savings account, your child will get that sum of money back as well as earning some interest. The initial investment is guaranteed.
But savings accounts do not always perform as well as accounts that invest in shares over the long term. When investing money for a long time, accounts that invest in shares almost always produce a better return than savings accounts. This is true for every 18-year period in the last 40 years.

Although investments based on shares have performed well in the past this does not mean that they will do so in future. You must remember that shares can fall in value as well as rise, and the Government does not guarantee the value of any CTF accounts.

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Q. Does it cost me anything to change the CTF provider?
A. There will be no charge for moving the account or for changing the type of account. However, providers may deduct the costs of selling the underlying investments, such as stamp duty and dealing charges, if you have stocks and shares as part of the CTF account.

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Q.If shares and stakeholder CTF accounts both involve investments, what's the difference between the two?

A.Although both types of account invest in shares, the Government has made rules for stakeholder accounts to reduce the risk. For example, the investments must be across a range of companies rather than just one and the 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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