Gaargh! Please help - my head is mince. CTF vs normal savings account

[EmmaBemma]

I've spent the morning looking at MSE forums till my eyes bleed but I don't think I'm any wiser. I'm hoping one of you kind people might help me out here.

Here's the deal: I have two children, each with a CTF stakeholder account. One has some extra deposits in apart from the initial £250, the other has just the initial £250. I'm worried about the markets (aren't we all) and present/future economic conditions etc, so although we're now in a position to pay money into an account for them both on a monthly basis, I would like this to be as unrisky as possible, as my first daughter's balance has already halved in value since we opened the account.

Should I:

a) transfer each account to another provider that offers cash savings as opposed to investment or stakeholder accounts - this feels risky, as value of savings probably won't match inflation over that period (I think?) and we won't be able to do anything else with the money except switch it to another CTF provider

b) forget about the CTF accounts and just set up a normal savings account for them both, then switching n' ditching (or whatever Martin thingy says) each year for best rates?

c) ...something else?

Please help!

CTFs are invested in the stock market so they are 'riskier' than a cash deposit. However 'risk' in the financial sense means that you can gain or lose. How long is it before your children are 18? Stock market investments over any 10-15 year period tend to outperform cash deposits over the same time. The performance of the last 4 years has been untypical because of the crash and it would not be advisable to base any long-term decision on that. With savings accounts paying around 3% and inflation currently at 4%-5%, you can see the flaw in keeping all their cash in deposits. Risk-free but relatively poor performance

I believe, now that the CTFs are set up, they cannot be transferred out - but that's something to check with your provider.

In your shoes, if I was risk-averse, I would hedge my bets. Invest half of the money you have for them in the CTF and half in a well-paying, notice deposit account (which you set up tax-free for a child). That way, if the stock market suddenly blossoms (which it can do very easily) you will gain, and offset the relatively low interest rates of a deposit account.

My DS was born too early for the £250 CTF freebie but I set one up anyway in 2000. That was performing very well until 2007 when the market crashed but I've kept making regular purchases. As the units are worth less now, I get more units for the money and it is performing well again. It matures in 2018 and 7 years is a long time for investments to turn around.

HTH

thank you, Cogito - that's all really helpful. Do you think the stock market is likely to blossom though? All seems doom and gloom at the moment, what with euro-geddon and everything.

The children are 4 and 15 months so there is a long time for things to turn around, though - 14 years at least. It's a tough one, but you've helped me think a bit more clearly!

In 14 years it is very likely that there will be several cycles of stock-market ups and downs. The market is low at the moment because there's so little confidence around and no-one wants to commit.... but there are guaranteed to be some smart investors out there getting hold of stock in good, solid companies at bargain basement prices and who, in 10 years' time, will be sitting pretty. One man's stock market crash is another's January Sale....

It is a gamble but, then again, so is putting money into cash deposits at 2% and 3% with inflation threatening to go up. That's why, in order to spread the risk a little, it's best to diversify rather than go 100% with just the one option.