Laura Suter: Child Trust Funds come of age

The first Child Trust Funds are coming of age in September. Here, Laura Suter explores how the lucky 18-year-olds can find and access their savings...

Anyone celebrating their 18th birthday this year could get a bumper birthday present thanks to the first tranche of child trust funds maturing.

The first children to get the accounts were those born in September 2002, meaning they are entering adulthood from next month – hopefully with a nice windfall to help them on their way. Obviously how much they’ll have in the accounts depends on three big factors: how much the government put in in the first place, whether their parents or family added to it, and what return the money got during that 18 years.

The Government put in an initial £250 or £500 if you were from a low-income family, and then topped it up for some children on their seventh birthday with another £250 or £500. Although you were in a fairly select few if you got that second top-up at seven, as anyone who turned seven after 1 August 2010 wasn’t eligible.

So this means 18-year-olds today could have £1,000 in the fund, plus any growth they’ve gained over that time. But what happens to the accounts once the account holders celebrate their 18th birthday?

There are a number of options and it’s down to the 18-year-old to decide – much to many of their parents’ horror, I’m sure. The account holder can obviously withdraw all the money and either spend it or put it in a normal saving account if they want.

Or, if they want it to keep its tax advantages, they have the choice of transferring it to an ISA – either cash, stocks and shares, innovative finance or lifetime. Any transfers won’t count towards the annual ISA subscription, so that means whatever sum they transfer they’ll still be able to put £4,000 into their Lifetime ISA and £20,000 into their ISAs in total in the current tax year.

But the big problem with Child Trust Funds is that lots of people don’t realise they have an account. If no one claimed the Government voucher on their behalf, the Government automatically opened an account and saved it for them. Many still won’t realise they have it.

What’s more, even if their parents did set up the account originally, many have lost the account details now and don’t know where the money is.

You can check with HMRC whether you have an account and who it’s with. Annoyingly this requires you to have a Government Gateway ID and setting one up is a bit of a rigmarole – although worth it if you’ve potentially got £1,000 sitting waiting for you.

If no one contacts the Child Trust Fund provider to tell them what to do with the money, they have two options: they could transfer it into a ‘protected account’, where it still won’t incur income or capital gains tax and it will sit until the account holder does something with it, or they could transfer it into a cash or stocks and shares ISA, if they offer one. But still no part of the annual ISA subscription limit would be used up by this.

Laura Suter is a personal finance analyst at AJ Bell