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Child savings at a crossroads

publication date: Sep 15, 2010
author/source: Neil Armitage
Neil ArmitageIntroduced by Labour in 2002, the Child Trust Fund (CTF) programme saw all UK children receive a voucher worth £250 (£500 for poorer families), with qualifying seven year olds receiving an additional £250. This will shortly be cast aside with the scheme ending in January 2011.

But the government savings drive shouldn't spell the end of saving for children and grandchildren. In fact one of the lessons learned from the so-called "crunch" is the importance of long-term finance and saving.

So what are the alternative options? Firstly CTFs have never been the only tax-efficient savings option open to children. In the UK, friendly societies are unique in being able to offer Child Tax Exempt Savings Plans (CTESP).
These plans provide beneficiaries with a final lump sum exempt from Income or Capital Gains tax and for forward-thinking families, could provide a crucial financial boost for a young person desperate for a first car deposit or to fund studying at university years from now.

Terms and conditions vary but it's possible for families themselves to determine the length of the savings term and contributions can be as little as £15 per month.

That aside, the financial services industry is currently considering the future of children's savings and while many providers,  including Foresters Friendly Society will be launching new alternatives shortly.

In the meantime, families are being creative too. Some are even investing money for youngsters in Self-Invested Personal Pensions (Sipps), a kind of DIY pension plan which can stay with a child from birth right until retirement.

Whatever your preference, there are other simple things to bear in mind when choosing an account for your newest family members.
  • Ask yourself whether you'd rather keep the account online only, or stay traditional and opt for a passbook-based offering.  
  • Find out also if there are any restrictions on how and when money can be withdrawn from the account, and any associated costs.
  • Consider also where and how the provider will invest your money. This will depend on your attitude to risk. Our own savings plans, for example, are invested in a with-profits fund, the performance of which guides the amount of bonuses paid into the account each year.
  • Tax rules may change and depend on individual circumstances. Inflation may reduce what can be bought in the future with any plan. 

Foresters Friendly Society offers a CTESP and still offers support for its CTF customers, more details of which can be found at www.forestersfriendlysociety.co.uk

Foresters Friendly Society is authorised and regulated by the FSA, FSA registration Number 110029