What to do with your Child Trust Fund, for good

Written by Lori Campbell on 19th Sep 2023

Nearly half a million young people in the UK are missing out on free cash – an average of £2,000 – left in unclaimed Child Trust Fund (CTF) accounts.

The Government is encouraging the 18 to 21-year-olds to claim the “pot of money with their name on” as part of UK Savings Week. CTFs are long-term, tax-free savings accounts that were set up for children born between September 1 2002 and January 2 2011. Parents could choose whether they were opened as a cash or investment account.

Many children received £250 each from the government to kick-start their CTF, while those from low-income families or in local authority care were given £500. The money is tied up until the child turns 18, therefore the first cohort gained access in September 2020. But many of these accounts have been long forgotten.

Young adults and parents can search here to find out where their CTF account is held.

But what then? Here we look at ethical options for your (or your child’s) CTF pot, so it can continue to grow – and benefit the wider world at the same time.

1. Use it to pay off expensive debt

First things first, if you – like many young people – have credit cards on a high interest rate or other expensive debt, your first priority should be to pay this off. Otherwise, any gains (although these aren’t guaranteed) made through saving or investing would be outweighed by debt.

As of September 2023, the average annual interest rate for credit cards stood at 31.2 per cent – the highest since 1998. No savings or investment account is likely to beat this in returns. 

However, if you have a credit card on a long zero per cent deal, you might be in less of a rush to pay it off.


2. Invest it in a green Stocks and Shares ISA

A Stocks and Shares ISA is a way of investing your money that shelters your returns from tax. Think of it as a basket to hold your investments in.

Many investment platforms offer ‘green’ options for stocks and shares ISAs. These pool investors’ money together to put into companies and projects that are working to solve the world’s most urgent problems and build a cleaner, more sustainable world. It means you can actively choose investments that are targeted to help with the issues you care about most.

You can invest up to £20,000 into an ISA each tax year. This allowance can all be used in a Stocks and Shares ISA, or you can share it between different types such as a Cash ISA (see below) or an Innovative Finance ISA.

Top 7 platforms for a green stocks and shares ISA

3. Put it towards a first home

Owning a home might seem like a distant dream – but the money from your CTF could help make it a reality. If you’ve never owned a home before and you’re aged 18 to 39, you can open a Lifetime ISA. This is a special tax-free savings account, where the Government gives you a 25 per cent bonus on up to £4,000 saved a year (so a maximum bonus of £1,000 per year). You can then use this pot towards buying your first home valued up to £450,000.

You can choose between a Cash LISA or a Stocks and Shares LISA. Cash LISAs are low risk, but comparatively low return, and might suit you if you’re aiming to buy a first home in the near future. Stocks and Shares LISAs are more risky but also have the potential for higher returns. They might be a better choice if you’re looking to buy in five or more years.

If you are keen to help the planet as well as your future self, the good news is that there are responsible investment options for your Stocks and Shares LISA. 

Just bear in mind that you can ONLY use your LISA towards either buying a home or retirement. If you end up withdrawing the money for any other purpose, you won’t get the 25 per cent bonus and will have to pay a penalty to withdraw the cash.

Top 4 ethical Lifetime ISAs (LISAs)

4. Invest it in a sustainable personal pension

Saving into a pension might seem very boring when you’re 18, but it really is a wise decision, and one you should prioritise at an early age. This is to ensure that you take full advantage of tax breaks and lovely thing called compound interest (this is where you earn interest on your interest, which over time makes a huge difference to your pot).

You can build your own pension portfolio using any number and combination of sustainable funds, trusts and shares through a SIPP (self-invested personal pension) – see the latest Good Investment Review for more – or through a normal private pension.


5. Move it to a sustainable savings account or Cash ISA

You might not be quite sure yet what you want to do with your pot of money. In this case, at least move it from where it is (as it’s unlikely to be the best place for growth) and take advantage of the recent rises in savings rates. You could keep the money in an easy access account if you plan to use it soon, or lock it away in a fixed-rate savings account (at a potentially higher rate) for a year or two.

If you’re looking for a better place to stash your cash than the high street banks, which remain beset by issues such as investment in fossil fuels, executive pay, fair treatment of customers, and so on, you could go for an ethical savings account. You could also consider a top-paying ethical Cash ISA.

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