Child Trust Funds or CTFs were introduced by the government on 6th April 2005 with the dual aims of promoting the benefit of long-term saving and investing, as well as trying to educate children about money, saving, and financial planning.

The CTF is a savings and investment account for children who were born after 1 September 2002 (unfortunately children born before 1 September are not eligible for this intiative). Each child who qualifies receives a £250 voucher to start their account. Children in families receiving Child Tax Credit, with a household income of less than of £14,495 for 2007/08 will receive an extra payment of £250. These vouchers must be invested in a CTF account on behalf of the child by the adult responsible for that child.

As well as the initial £250, a further £1,200 can be saved each year on behalf of the child by parents, family or friends. The CTF itself is totally tax free, and there is no income or capital gains tax paid either on dividend income or by the capital growth of the investment.

When the child is seven the Government will make a further contribution of £250, and for those in lower income families this is bumped up to £500. When the child reaches 16 years of age, they can take responsibility on deciding how the money is managed, and when they reach 18, the money is theirs. Scary!

There are three type of CTF accounts:

Savings or Cash Account – As the name suggests this account is essentially a deposit account offered by a bank or building society, similar to a cash ISA. Although cash is a “safer” investment, because it is highly unlikely to go down in value, it is restricted by the level by which it can grow by the amount of interest the bank are prepared to pay. Please note Jump does not offer a cash account.

Stakeholder Account – This is an account that invests in equities or shares of companies. The stakeholder account must adhere to certain criteria determined by the government such as restrictions upon where the money can be invested, and the types of investment that can be held. Investment trusts are not eligible for the Stakeholder account therefore Jump does not offer a Stakeholder account.

Shares Account – This account is not subject to any of the criteria that restrict the Stakeholder account, therefore there a far wider variety of investment choices. The Jump CTF is a shares account because it invests into Witan Investment Trust plc.

The differences between a Shares CTF and a Stakeholder CTF are summarised in the table below:

To find out more about CTFs, please click here to visit the government's dedicated CTF website.