What is a Child Trust Fund?

The Child Trust Fund (CTF) is a Government initiative, designed to encourage both parents and children to save or invest tax-efficiently. It's open to children born on or after 1 September 2002 and it aims to ensure that children have some money behind them to help make the transition into adult life and when they reach 18. Any monies paid into a CTF are locked in until your child reaches 18.

To give your child's fund a head start, the Government will give at least £250 (or up to £500 if you're in receipt of full Child Tax Credit), with a further £250 on your child's seventh birthday (or up to £500 if you're in receipt of full Child Tax Credit). You, your family or friends can make regular one off deposits up to a total of £1,200 per year (from birthday to birthday) right up until the child's 18th birthday.

Types of account

There are two types of Child Trust Fund that you can invest your child's money into; a cash fund where the money is held in a traditional bank/building society account or an equity stakeholder fund where the money is invested in company shares (equities).  

Equity Stakeholder Child Trust Fund

This is not a bank/building society account. It invests your child’s money in equities. 

Stock market-based investments have the potential to provide a higher return than savings accounts, if you invest for a long time. This is because although stock markets tend to go up and down in value, the stock market’s value over a long time period has tended to rise more than it falls. But remember, no matter how well an investment has performed in the past, this is no guarantee of how well it might perform in the future as this depends on market conditions.

Investing in the stock market is more risky than putting money in a savings account as the value of shares can fall. However, as the Child Trust Fund is a long term investment, there may be time for any fall in value to be recovered. Indeed, analysis of stock market performance over the last 40 years shows that, in any 18-year period, an amount invested in stocks and shares has grown by more than the same amount of money left in a savings account. (Source: www.childtrustfund.gov.uk)

Cash Child Trust Fund

This is a tax-free savings account paying a variable interest rate. As it’s a pure savings plan, it’s secure – your child is guaranteed to get back every penny invested, plus interest and any bonuses paid, when they reach 18. Remember, though, that unlike our other savings accounts, no one can make any withdrawals until your child’s 18th birthday.

Choosing the right account

Both types of account are available through Nationwide. To open a CTF account you must choose either a cash or equity stakeholder CTF. For full information on your options please read our CTF leaflet (pdf 274KB)