Banking and FinanceIssue 04 - 2024MAGAZINE
GBO_ Child Trust Funds

Child Trust Funds: Could your money be waiting?

The government has made several billion pounds available from the nearly £10 billion currently held in Child Trust Fund accounts

Is your name on a pot of thousands of pounds? HM Revenue and Customs, which is more known for requesting money than giving it away, called on hundreds of thousands of young people to come forward and “cash in their stash” recently.

According to the tax authority, around 671,000 individuals between the ages of 18 and 22 have matured Child Trust Fund (CTF) accounts worth an average of £2,082 that are sitting unclaimed. Nevertheless, the millions of Child Trust Fund accounts that exist worldwide are far larger than those 671,000 matured pots of cash.

The latest official data revealed that there are approximately 42.2 million Child Trust Fund accounts overall. However, many of these accounts appear to have been overlooked or forgotten. The government has made several billion pounds available from the nearly £10 billion currently held in CTF accounts.

Additionally, parents and children were encouraged to use the HMRC announcement recently as a reminder to assess the performance of their CTF and consider whether it would be more prudent to move the funds to an account that offers a higher return and/or lower fees.

What are CTFs?

Introduced in 2005, CTFs, also known as “baby bonds,” are long-term, tax-free accounts for kids. Before being abandoned in 2011, more than 6.3 million were opened. Each child born between September 1, 2002, and January 2, 2011 received a monetary “endowment” of about £250.

Family members and friends have also been able to contribute money, and some kids have received top-up payments from the government. The first CTF children turned 18 in the fall of 2020, beginning a multibillion-pound payout that will continue until the beginning of 2029.

According to estimates, 55,000 teenagers, or 1,800 every day, turn 18 every month, entitling them to a pot of money bearing their name. The youngest CTF children are 13 and a half, and the oldest, who have yet to claim their pot of cash or transfer their account, turned 22 this month.

The government awarded about a third of that £10 billion, with the remainder coming from contributions from friends and family and interest and growth from investments. In general, there was a choice between accounts that primarily invested in shares and those that saved cash. The funds are kept in banks, building societies, and other savings institutions rather than by the government.

It’s their cash

The child owns the money in a CTF, but they can’t access it until they’re eighteen, at which point they can either spend it or reinvest it in an adult Isa.

This money should probably be spent carefully, maybe investing it, paying for driving lessons, or helping with the costs of college or a gap year. However, once they turn 18, they can spend it on anything, which could lead to them squandering it on drunken friends’ vacations or freshmen week parties.

The HMRC stated, “We want to reunite young people with their money, and we’re making the process as simple as possible.”

The agency reports that thousands of Child Trust Fund accounts belonging to individuals aged 18 to 22 remain unclaimed. Many young adults may not be aware that they have a CTF account in their name.

These accounts were opened long ago, and some parents may have moved and forgotten about them. Additionally, it is possible that a few years back, the accounts were transferred to a different provider. If the young adults, or their parents, already know who their CTF provider is, they can easily reach out to them directly.

In case they are unsure of the location of their account, they can use the online tool on the gov.uk website to identify their provider. Young people will need their national insurance number and date of birth to get hold of the information.

The Share Foundation is a nonprofit organisation that operates a free search engine and has been collaborating with the government to assist youth in locating their accounts. You can fill out a straightforward form by visiting findctf.sharefound.org. This will be sent to a specific HMRC department if needed.

More than 65,000 young people have had their CTF accounts reunited with them by the Share Foundation thus far. Keep in mind that there are third-party businesses that advertise online that they can assist in finding people’s accounts, but they will always charge. According to HMRC, one of these companies demanded up to £350, or 25% of the account’s value. Don’t spend money to locate your funds.

If your child is under 18

According to the most recent data, a majority of CTF accounts did not receive any payments during the April 2023–April 2024 12-month period. That implies a large number have been overlooked.

If you hold a Child Trust Fund for your child, you have several options available. You can either transfer it to a different CTF provider or keep it as it is.

It’s important to check the interest rate for your cash CTF. If the rate is too low, consider transferring to the Earl Shilton Building Society in Leicestershire, which currently offers a Cash Savings Account (Non-Stakeholder) that accepts transfers and pays an interest rate of 4%. You can manage the account at their branches or through the mail.

Transferring funds to a junior Isa has been possible since 2015. For many, this will likely be the best course of action because they will typically be able to receive a higher return.

Top-paying junior cash Isas that take transfers from CTFs include Tesco Bank’s Junior Cash Isa, which pays 4%; the Stafford Building Society’s account, which pays 4.75%; and the Coventry Building Society’s Junior Cash Isa (2), which pays 4.7%. Although there are occasional restrictions on who can open them, Junior Isas pays respectable rates at several smaller building societies.

On the Moneyfacts website, you can view the most recent junior cash Isa rates and information.

Are you being overcharged?

Junior investment Isas typically have lower fees, so if you have an investment CTF, you might be paying too much in charges.

According to Charlene Young, a savings specialist at the investment platform AJ Bell, many CTF providers are taking “huge sums” of money to manage the accounts, which is something that was brought to light in a parliamentary report in 2023.

“According to the report, a lot of accounts charge 1% per year for a passive fund portfolio, while a junior Isa on a modern platform might cost about 0.25% plus the cost of a tracker, which can be as low as a few basis points,” she continued.

Furthermore, compared to junior Isas, which frequently offer a wide variety of funds, shares, and other investments, CTFs frequently only offer a small portion of the investment options.

A platform that accepts transfers and has a wealth of helpful information on its website, like AJ Bell or Hargreaves Lansdown, might be a good first port of call for a junior investment Isa. You can invest with either company starting at £25 per month.

Meanwhile, HM Revenue and Customs (HMRC) has started the countdown clock by reminding clients that they have one hundred days to file and pay their “Self-Assessment Tax” return by the deadline of January 31. Already, over 32.5 million people have beat the clock and filed their returns. HMRC is reminding people that by beginning their self-assessment early, they can better budget, avoid last-minute panic, and increase the likelihood that they will file an accurate tax return.

“The countdown to the self-assessment deadline has begun but there is still time to thoroughly prepare and file an accurate tax return by 31 January. You can access online help and support to help you file. Search ‘help with Self-Assessment’ on GOV.UK to find out more,” Myrtle Lloyd, HMRC’s Director General for Customer Services, said.

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