by Simon Wright

Created on: April 27, 2010

The arrival of a new baby is a time of great excitement. For the parents there is also a sense of responsibility. You want to make sure that your child’s financial needs (as well as their emotional needs) are taken care of. Perhaps you envisage them going to college one day and want to make sure that they won’t find themselves saddled with debt, or maybe you just want to give them the best possible chance of getting onto the property ladder. Therefore, when the initial chaos of nappy changes, frequent feeds, and disrupted sleep has been mastered, it’s common for parents to turn their attention to opening a savings or investment scheme for their child.

In the UK, a Child Trust Fund (CTF) provides a mechanism for parents to cater for their child’s long-term savings needs. The scheme was introduced by the Labour government in 2005 and offers the dual incentives of tax-free returns plus lump sum contributions by the government to get you started.

Child Trust Funds are available to all children born after the 1st of September 2002 and the basic key features of the scheme are:

The government provides a voucher for 250 pounds into the account when it is opened. Families on income support receive an extra 250 pounds (so 500 pounds in total). Government provides an additional 250 pounds (or 500 pounds for families on income support) when the child reaches the age of seven. All returns are tax-free Parents (and other relatives) can pay in up to 1,200 pounds per year. The account belongs to the child (rather than the parent) The money can’t be accessed until the child reaches the age of 18

That makes for a pretty attractive proposition but parents also have a choice of how they want the money to be invested. These options are:

CTF Savings Account:

Savings accounts provide a low risk means of accumulating money for your child. The main benefit of opting for the CTF Savings Account is you know that you are going to accumulate a sizeable fund without being at the mercy of the vagaries of the stock market.

CTF Stakeholder Shares Scheme:

An alternative to the Savings Account is to invest in shares. As with the CTF Savings Account, the government commits to provide money when the account is opened and again when the child turns seven, and the same 1,200 pounds annual investment threshold applies.

However, rather than the money being invested in a no-frills savings account, it will instead by invested across a range of equities. The main benefit

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