Ending Child Trust Funds won't stop parents saving for children

It would appear that the axing of Child Trust Funds by George Osborne, the new chancellor, has been vindicated.  New research commissioned by F&C Investments indicates that 70% of parents of under-eights would continue to save for them even although the Child Trust Fund is to be abolished.  A further 16% were undecided, while just 14% said the abolition of the CTF would stop them from saving for their children. 

The research revealed that free money is not the biggest factor in investing for children. Overall 74% of those surveyed saved for at least one of their children, with 50% of those saving having one or more child born before the CTF eligibility start date of 1st September 2002.  

It proves what we all know – the middle classes will always save for their future – and it could point the way to a cut in pension tax relief to the basic rate of 20%.  How many responsible adults would stop saving for their retirement just because tax relief had been reduced?  The benefits of CTFs, apart from the giveaways of £250 or £500, were largely illusory anyway given that very few children are taxpayers and would gain little or nothing from the ‘tax free’ status of CTFs.

CTF vouchers will be reduced from £250 (£500 for low income families) to £50 (£100 for low income families) from 1st August this year, and no new vouchers would be issued after 1st January 2011. Parents with vouchers issued before January next year will still be able to open a CTF and top up their child's account with up to £1,200 a year, which will grow tax-free until the child reaches 18.  

But it must be galling for an investment house like F&C to find that bank and building society accounts remain the most popular choice, with 68% of parents who save saying they use such an account already, while a further 15% would consider doing so. There was considerable reluctance among parents to take risk with their children's investments. Just 7% said they used a children's investment product based on investment trusts or OEICs.

You will be able to continue investing in CTFs after the vouchers are abolished and for cautious parents who want the highest return - with only the risk of inflation eroding the buying power - the best CTF savings account comes from Hanley Economic Building Society which is paying 5% on sums of £250 and upwards.  However, you can only open an account at a branch which means you have to live locally.  There is a big drop in the return paid on the next best account from Yorkshire Building Society which is offering just 3% on sums of £250 or more and the rate includes a bonus of 0% for the first 12 months.  You can open an account by post at or at a branch.

These rates are so low you might want to listen to Jason Hollands, a director of F&C: ‘Parents' reluctance to take risk with their children's investments means they may be missing out on the chance of superior returns. An investment period of 18 years should be enough to ride out short term ups and downs in the equity markets, though of course returns are not guaranteed.’  

Most private client stockbrokers offer a self-select CTF wrapper and Citywire provides performance figures and ratings for all mutual funds eligible for CTF investment or you can consult an IFA for advice on suitable investments.