My 2 DC both got the government voucher for child trust fund when they were born, so we duly invested it in a FTSE linked fund, and also topped it up by the amount we can afford. Now I'm wondering if it is all such a good idea. The balance has gone up and down as the FTSE value has, which I expected, but now that the scheme has been abandoned for new children, and all money is tied in until the children reach 18, I can't help wondering if these funds will become quickly obsolete, with diminishing returns, as all the fund managers will treat them as a lower priority, given the diminishing new investment.
I'm annoyed now by this, and worry that a significant amount of my hard earned money is tied into a sub-optimal fund. I plan to cancel my standing orders tomorrow.
Given that parents with children born between particular dates are rather 'locked in' to the CTF schemes until the children turn 18 the fund managers will still be competing, trying to attract further investment from those parents, and hoping that they don't cancel their standing orders. So I don't think it necessarily follows that they will be forgotten about or become obsolete. They were set up for the long-term after all.
My DS was born in 2000 which was too early for the CTF so I didn't get the £250 freebie. They have also seen good and bad days due to the Credit Crunch etc. Ultimately, there is no way of knowing that the fund you select today is a cracker or also 'sub-optimal'.... spreading the risk is all anyone can do.
My DC's (6 & 4) CTF's have never been added to as I don't want them to have that money to fritter at 18. What was £250 is now a few quid less.
They've got another trust fund saving account that is in my name so they can't spend it until their early 20's, National Savings bonds IIRC, and the value of that goes up (as well as adding birthday / Xmas money to it).
The annoying thing is, my children qualified for these, but if they hadn't, they would have been eligible for the children's ISA which have now been introduced. I'd have rather not had the £250 and had tem eligible for the ISAs.
DS just about qualified for the £50 CTF voucher. I set up one of the accounts which is just like a savings account so that the capital in it is protected, rather than going for a unit-linked one. It's possible to switch from one type of CTF to another I think so those of you with unit-linked ones might want to investigate that. I do think it's crazy that they won't let them be switched to a Junior ISA though.
It all depends on your attitude to risk. The advantage of savings accounts is that there is no risk at all.... what you put in you get back.... but the disadvantage is that the interest rates are so poor that anything earned is wiped out by inflation. Similarly Premium Bonds. The original stake is safe but the pay-outs are so poor that you might as well keep the money under the mattress.
The disadvantage of Junior ISAs, trackers, unit trusts and other investments angled at children is that they involve risk.... investments can go down as well as up. The advantage however is that, being a 10+ year investment, they could eventually go up a lot higher than an equivalent deposit account.
Saving rates are at an all time low at the moment. Try looking into smaller and independent banks which tend to offer slightly better rates (however Halifax junior ISA isn't bad).
Premium Bonds are also a good idea. They don't have a specific interest rate but you do have a good chance of winning additional money and its a safe and good investment that will grow over long period of time for your children.
It may be worth considering having a saving account in your own name as once the bond matures, your child can do anything with it. My parents set up an account for my sisters for university....she used it to go travelling instead.
Premium Bonds are lousy. There is no guarantee whatsoever that they will grow over a period of time. All you are guaranteed to get back is your stake money. Even though there is an average pay-out, 'average' in reality means a few people get a lot and most people get nothing at all. Read this extract from the MoneySavingExpert site and try out the calculator.
There are some really excellent CTfs out there, but these are non-stakeholder and you need to search. There was times when I was buying DD's at 50p per unit and the statement arrived yesterday and we now are at £21 per unit. They will shortly start to move hers into blue chips, but the first two years of tuition fees are paid for if she wants to go to Uni.