child trust funds and saving for kids future - what's the best option now?

[seanchai]

I've just read the following (see below)on moneysavingexpert and now i'm worried about what to do. I have paid £50 a month into ds1 's trust fund for six years and I am nnow about to open a second tf for new ds2 but foolishly i didn't realise this money goes straight to the child

Do I keep paying in or change to an isa that I can control incase my dc develop a money-burning bad habit by 18? Is there a better product out there and are ctf going to become a bit rubbish?

I don't know much about money - anyone got any advice?

Where is the best place to save for kids future?

from msexpert -

Child Trust Funds Scrapped!
Warning Switch Now! When products are defunct, rates plummet
The Chancellor's just announced his £6bn spending cull, and Labour's Child Trust Funds policy, which gave every child at least £500, is a victim.

It also allowed parents to save tax-free alongside it, yet often didn't deliver its aim to get parents saving towards a 'college fund'. I suspect, the main mistake was full control went to the child at 18, prompting worries about rebellious future teens.

What are Child Trust Funds (CTFs)? They're a tax-free way to save or invest for your child where you can put up to £1,200 a year in. The big boon is the state also adds a £250 voucher (£500 for low income families) at birth and again aged seven, ie, min. free £500.

When'll it be scrapped? From 1 August, the Govt plans to ditch the payment for 7yr olds, and slash it to £50 for newborns (£100 for low earners). From 1 Jan 2011, all Govt. top-ups stop. See: CTF payments axed

What happens to existing CTFs? They'll remain tax free, and you'll still be able to put £1,200 a year in them.

What'll happen to rates? While money can still be added to them, CTFs are likely to become a bit part pretty quickly. I doubt banks will scrap to fight for new business, meaning rates'll plummet.

Get up to 3% NOW - on new and existing CTFs! Many say CTFs already pay pretty poor amounts, yet you can transfer to a new deal (ask the new provider to shift it for you). The top payer's Yorkshire BS at 3% AER with a year-long 0.7% bonus though it's branch only. Alternatively Chorley BS pays 2.9% AER in branch or by post, see the Best Buy Child Trust Funds guide.

What about investment CTFs? We don't cover investments, as only a crystal ball gives the right answer. But, basically, with stocks & shares CTFs, you're reliant on an investment manager & market performance. Not a bad thing, as long as you're aware of the risks (ie. upside big growth, downside lost cash)
While you're at it, check out the Best Buy Children's Savings guide.

I posted a similar question a few months ago and went to see a financial advisor at Nationwide. As a result I now have a stocks and shares ISA in my name but intended for DD's future. That way you get a chance at a better rate of savings than a childs account but it's still tax free and you retain control of the money. It was scary gambling the stock market for someone who's a cautious person at the best of times but I felt that as I'm saving for 15+ years time it should even out.

Halifax childs regular saver usually has a good rate (See MSE) but it only works for a year and then you need to think about how to invest the money you have accumulated. Go see a FA and good luck!

thanks for your advice, notasausage. very wise, will look into it.

I'll email you in fifteen years and we'll see how we got on!!

I work for a company that offers CTFs and our understanding is that if you have an account (which should apply to all children born between 1 September 2002 and when the tap is turned off next January), you will continue to be able to top it up. So, if you're happy with the one you have, there is no need to switch out of it and you can keep your ISA allowance for yourself.

I'd second what notasausage has said about stocks and shares for the long term. Also from what I've seen there are often better interest rates available on non-CTF cash accounts, so if you can afford it you could have a shares CTF for long-term growth and pay into a regular savings account for capital security.

The ISA is a perfectly good route too, however.

Also, as regards money-burning habits, one of the lofty aims of the CTF was supposed to be to teach children about managing money - it was meant to be something universal that they could talk about in class and so on, with the hope that they would be a bit more clued-up at 18 than many of my generation. Now there is potentially going to be a generation (well, 8 years' worth) of 'haves' sandwiched between two sets of 'have nots' (like my DD who was born before CTFs),and I can't see the educational establishment (not that there is going to be a body overseeing the curriculum any more) making much of an effort on that basis.

The other thing to consider is is the CTF you choose linked to a fund which will continue to exist when CTFs disappear?
As for money burning habit I am afraid my 6 year old already has performance related pay and when her weekly money is gone it's gone. I was always made to work for my pocket money, so I have followed my parents example it was tough I often had less than my school friends, but lessons learnt young I left uni with only £2,000 worth of debt compared to the average of £15,000 of my friends as I worked all the way through.

so if you have an existing CTF can you close it now? or just transfer to another type of account CTF or otherwise?

Knat - as I understand it, existing CTFs will continue to exist as if nothing had happened - you can still add to it up to £1,200 a year, you still can't get the money back until your child is 18 (at which point it is paid to them, not you) and you can still transfer to another provider if you wish. However, there may be fewer providers to choose from in future as some (particularly those who don't do much CTF business) may decide to leave the market. You might feel more secure leaving the money in your CTF where it is and putting your future investments in a product that is not (so) subject to politicking.