I can save £10 a month for 18 years for DC into a child's savings account. If the interest rate is 4%, how much will there be at the end?
I ask because I am trying to decide whether to use a low risk CTF or children's saving account.
I am very risk averse. Rightly or wrongly I have a deep suspicion of any financial products aimed at the not very wealthy or not very financially savvy - i.e. me - (Endowment mortgages. Stakeholder pensions. Advice to buy AVCs to public sector workers. All crap, yes?) So I am reluctant to save into a CTF if saving the same amount into a savings account will end up with a similar amount to the amount the CTF provider predicts it will pay out at the end.
I'm no good at maths, but if I had £10 a month to save, I'd be putting it together and buying a premium bond every year. You may not gain interest, but they are safe and you may even win more money on them.
CTF's are higher risk than straight savings accounts. However, in financial terms, higher risk can mean higher rewards. Over the long term - and CTFs typically don't mature until the child hits 18 - a well-invested fund is likely to perform well. I've been putting an amount into a CTF for my DS since 2000 (before the voucher scheme) and the average return in the last 11 years has been around 6% - and that's after two serious stock-market crashes in the last 3 years.
Thank you. That does sound good, but how do you assess if your CTF is well invested or not? I get the principal that stock market investment goes up and down but over time is more likely to go up, so if you keep an eye on your investments and cash them in when things are on the up, then you make money. But with the CTF am I right in thinking you have to 'take' it when your child turns 18 - so if that happens to be a bad time then you will lose money?
I assess my CTF performance same as I do all other investments, which is by keeping a record of the transactions on personal finance software and keeping it updated when I get valuations - that's how I know it's 6% over 11 years. When my particular CTF matures in 2018 the company holding it will write to my DS and give him options on what to do next. There's no requirement to cash in straight away - which, you're right, would be silly if the market has dipped.
Junior ISAs are coming in from November. Worth checking those out, in particular understanding any fees applicable, before deciding where to put the savings.
Cogito, feel free to ignore if my next question is too personal, you have been v. helpful already, but was your CTF through the government scheme where they give you a voucher, or something you set up outside of that?
I only ask because I have the government voucher, the provider is Family Investments, I have just phoned them up and they said the Government set a rule that if you are using their voucher and their CTF scheme you DO have to cash it in on the child's 18th birthday, whatever the state of the market.
there are two sorts of CTF - one is like a savings account, the other is an investment account (so money is in the stockmarket). They do have to be cashed in when the child is 18, but it might be possible to move the money into the savings type before the end date if the market has done very well, that way you lock in your profits IYSWIM
from what I've read Junior ISAs will not be an option for children who can have a CTF, only those who were too old or too young for that scheme can have an JISA
I set my DS's investment up in 2000 which was before the voucher scheme and it's with Family Investments. Their site says they will contact the young person shortly before the fund matures offering them options what to do with the money. I've got other investments with them and have usually had good experiences.