Should you reinvest your Child Trust Fund cash?

The first batch of these savings deals are maturing and deciding what to do with the money is far from simple.

Consumers with maturing Child Trust Funds (CTFs) should consider reinvesting their windfall and avoid the urge to fritter it away, experts say.

This week, the first wave of children with CTFs will start to turn 18 and be able to unlock these trusts for the first time. 

These trust funds could now be worth anywhere between £500 and £1,600.

The average CTF holds £877.15, according to The Share Centre, which was recently bought by interactive investor.

This money could be invested in new deals to help continue building wealth.

Carol Knight, chief operations officer at The Investing and Saving Alliance (TISA), says:

“All account holders should seek guidance as to what to do with the money accrued. It is worth considering the benefits of carrying on saving to build a more substantial amount. To do this, it is worth thinking about transferring savings into an ISA or a LISA (Lifetime ISA).”

Myron Jobson, personal finance campaigner at interactive investor, says a simple investing solution is a good pick for many young and inexperienced would-be investors.

He says:

“We like the Vanguard LifeStrategy range, which offers ready-made investment portfolios to suit different risk levels and provides instant exposure to hundreds of investments around the world.”

Even Vanguard’s least-risky LifeStrategy portfolio, the 20% equity fund, returned 2.58% in the year to 31 August and 13.8% in the past three years.

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While investment returns are not guaranteed, over a long timeframe, invested money tends to perform far better than cash left in savings accounts.

The top one-year fixed bond, from Paragon Bank, pays 1.2%, while the best easy access account, from National Savings & Investments, would return 1.16%.

But parents’ worries that their children will waste CTF cash might be unfounded, according to Andy Parsons, head of investments and product proposition at The Share Centre.

Parsons says:

“Many parents may be nervous about their children gaining access to the money they have built and managed for them over the past 18 years. However, our research shows this generation are very cautious and risk-averse when it comes to managing their money.” 

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CTFs were introduced by the government in 2005 to encourage families to save for their children’s future. Around six million children born between 1 September 2002 and 2 January 2011 were eligible for the tax-free accounts, which were replaced by Junior ISAs in 2011.

The government added £250 into a CTF during a child’s first year, then for a short period added another £250 when they reached the age of seven. For lower-income families, the payment was £500.

But more than £1 billion is sitting in one million CTFs that have been lost, according to TISA.

Providers have lost touch with the owners of these deals, many of whom never put money into them after government contributions.