Setting Up a Trust Fund for Your Child's Education
The cost of education is rising. Escalating university fees are well-documented, and private schools certainly don't come cheap either. Saving for your child's education is a must these days.
There are a number of ways you can invest money now so that your child will have a much better chance of a secure future and the widest education choices when they're older.
Setting up a Child Trust Fund (CTF)Any bank, building society or other financial company which has been approved to offer CTFs. The government CTF website provides a list of all the CTF providers. There are a few types of CTF account and not all providers offer all of them, so it's best to research the type of account you'd like, before you decide where to open it.
Types of Child Trust Fund
There are three main types of CTF, each involving a varying degree of financial risk:
- A savings account is the safest investment method. You are guaranteed to get back the money you put in, plus any interest.
- An investment account means that your child's money is invested by buying shares in companies.
- Stakeholder accounts also invest your child's money in company shares, but the money is switched to lower risk investments when your child turns 13.
Although in the long term investment and stakeholder accounts are likely to yield more money than a savings account, it's important to be aware that shares can lose value as well as gain it.
If you choose an investment account and are concerned about the types of companies your child's money might be invested in, ask about the provider's policies on this matter. Some will offer ethical accounts, where money is only invested in pre- agreed types of companies. Sharia accounts are based on Islamic values and will not invest money in companies which violate them.
Managing a Child Trust Fund
There is a £1,200 cap on the total amount of funds which are allowed to be paid into a CTF in any one year.You can change the provider and type of CTF at any time before your child is 18. When they do turn 18, they can do whatever they like with the money legally. However, it is hoped by the government that as well as providing young people with a good start in life, a CTF will also be an introduction for them to saving budgeting and managing money.
Sometimes you might feel that a CTF isn't for you; your child may have missed out on the government-subsidised CTF or perhaps didn't qualify .You might also prefer to control the money or wish to access it before your child is 18. You can still help them save for their future.
There are a few alternative options:
Parents can put a capped amount of money away each year tax free in an Individual Savings Account (ISA). Although the account won't formally be the child's in the same way as a CTF it can still be a good alternative.Many banks and building societies offer children's accounts which are in the child's name, and can also be restricted so that the money can't be released until your child is a certain age.
Again you could open an account for your child where their money is invested in stocks and shares. Children's bonus bonds are available in separate "issues", each of which has its investment limit and rate of return. You can invest from £25 to £1,000 in each issue, and at the end of five years you can either cash it in, or reinvest it in a new issue.
It's true that there is a wide range of savings options for your child's future education, and there's lots of research to be done before you commit your hard-earned cash. However, you can be confident that the time and money you are spend now will pay off greatly in terms of your child's future and education.