Child Trust Funds
Opening an ethical child trust fund account invests for your children's financial future, as well as the future of the world they will grow up in.
By choosing an ethical account you can help ensure that your child's money isn't invested in companies with poor environmental or human rights records or those involved in the arms or tobacco trade, for example.
This section explains how child trust fund accounts work and the different types available. It also looks at what ethical options are available.
What is a child trust fund account?
What is a child trust fund account?
Children living in the UK, who were born on or after 1 September 2002 and for whom Child Benefit is received, are entitled to a child trust fund account. The government gives the parent of each eligible child a voucher worth £250 which is to be invested in a suitable savings account or fund. Additionally, parents or other family members and friends can invest up to £1200-a-year in the account on a child's behalf. Furthermore, the government will make a second payment of £250 when the eligible child reaches seven. A third payment for teenagers is under consideration.
The government's stated aim in setting up the trust fund system is to ensure that every child has savings at the age of 18 and also to get children into the habit of saving, while educating them about personal finance.
The government voucher can either be deposited in a savings account or invested in a fund depending on the requirements of the parents and their attitudes toward risk - i.e. are they seeking a higher return from a fund or would they prefer a safer savings option? Either way it is important to remember that you are not bound by your initial investment and can move your child's account to a new service provider at any time.
CTF accounts that invest in shares
Investing in shares may be more risky than putting your CTF voucher in a savings account, but in the long run it may provide a higher financial return. This type of account invests in the same way a regular investment fund does - i.e. in companies listed on the stock market. For this reason they are subject to the same green and ethical concerns (see Investments & ISAs section for more details or see below for the ethical accounts that invest in shares).
CTF stakeholder accounts
A stakeholder account also invests your child's money in shares in companies, but is subject to certain government rules to reduce risk. When your child reaches 13, the money in the stakeholder account starts to be moved to lower risk investments and assets like cash.
HM Revenue & Customs will open a stakeholder account if you don't use the voucher within one year of your child's birth.
CTF savings accounts
If you do not wish to invest in shares, click here for a full list of providers offering savings accounts.
What are the ethical options?
All child trust funds are required to publish their policy about social, ethical and environmental investments, if they have one. So, to find out how they invest your child's money, all you need do is ask. If you're not happy with their policy you can easily switch to a CTF account that meets your green and ethical needs. Below are details of four CTF accounts: two stakeholder and one non-stakeholder fund and a savings account, with clearly-stated green and ethical policies:
• The Children's Mutual
This is stakeholder account, whose ethical 'Baby Bond ®' invests in the CIS UK FTSE4Good Tracker Trust.
The trust invests in companies listed on the FTSE4Good Index and screens out companies involved in the production or sale of tobacco and nuclear and other weapons systems, for example, or that actively seek to invest 'positively' in companies with good track records on key green or ethical issues.
• Family Investments
This stakeholder account is guided by an ethical policy that screens out companies involved alcohol; tobacco; pornography; military/armaments; animal testing (cosmetics/toiletries); intensive farming; non-sustainable timber; human rights; and environment (pollution of waterways).
• Healthy Investment
This is a non-stakeholder account that invests in a variable mix of bonds, gilts (loans to the government and other companies) shares and property. It states that it 'does not knowingly invest directly in alcohol, tobacco or arms companies'.
• Methodist Chapel Aid Ltd
This institution offers a child trust fund savings account. Its stated ethical policy is that it will not invest in companies 'which are substantially involved in tobacco, gambling, alcohol, the arms trade, oppressive regimes, pornography, intensive farming, and/or activities which infringe basic human rights.' Furthermore it states that it will not invest in companies 'which are mainly involved in animal testing of cosmetic or household products, and/or in activities with a harmful ecological impact.'
Your next steps
Check out our guide Next Steps - Child Trust Funds for suggestions on how to find out your current CTF account's ethical policy and how to choose and switch to a new account.
