The first wave of child savings deals matures next month, but one in six savers face low rates unless they act now.
One in six 17-year-olds who have lost track of their child trust funds (CTFs) could soon be moved into savings accounts with interest rates that pay “next to nothing”.
These funds were introduced by the government in 2005 to encourage families to save for their children's future. Around six million children born between 1 September 2002, and 2 January 2011 were eligible for the tax-free account, which were replaced by Junior ISAs in 2011.
In September, the first wave of around 800,000 children will start to turn 18 and be able to access the trusts for the first time. They can choose to either cash them in or transfer them to an adult ISA, or both.
These trust funds could now be worth anywhere between £500 and £1,600.
Some parents already shifted their children’s nest egg to cheaper and more generous Junior ISAs, but many families have either lost track of the CTFs or never activated them in the first place.
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Last year, MPs warned that one in six youngsters could miss out on £1.5 billion in cash because the government had 'lost' track of them. This mostly happens when families move home and do not update their records.
Account holders who do not engage with their provider when their fund matures in September risk being automatically moved into accounts with paltry savings rates.
Andrew Hagger, founder of personal finance experts MoneyComms, called on parents with children turning 18 from this September to take action now to ensure their nest egg does not automatically switch into a poor savings account.
Hagger says: “Even if people only took the £250 government voucher and didn’t put any more money in, that could be worth almost £600 in a stocks and shares strategy.
“But if you've lose track of the pot and don't do anything with it when it matures, that money will then go into a really poor-paying cash savings or holding account that pays 1% or less, which means returns will be next to nothing.”
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Even with inflation exceptionally low at 0.6%, even lower savings rates mean most will lose money on their CTF nest egg.
The top variable rate cash ISA, from Cynergy Bank, pays just 0.9%.
CTF providers usually contact account holders shortly before their 18th birthday to report on the fund’s value and explain their options when it matures.
People can check if they or their children have a CTF by searching for it on the website of HM Revenue & Customs.
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