Nearly one in three parents still saving into CTFs
Nearly one in three parents saving regularly for their children are paying into Child Trust Funds despite concerns about a lack of choice and relatively poor returns, new research from housing investment and shared equity mortgage provider Castle Trust shows.
Its nationwide survey among parents with children under 18 found 29% - equivalent to 2.8 million families - save regularly into Child Trust Funds despite them being closed to new business since January 2011.
That makes them the second most popular method of saving for children behind bank or building society accounts which are used for some or all of savings by 56% of parents but ahead of methods offering potentially higher returns such as Cash or stocks and shares ISAs and Junior ISAs.
Currently the best rate for a cash CTF without a bonus is 2.65% while annual management charges on stocks and shares CTFs can be higher than on many stocks and shares Junior ISAs.
More than 4.46 million Child Trust Fund accounts had been opened by the end of June 2012, according to HMRC data, and customers can swap the money in CTF accounts between providers but not to other types of saving or investment accounts.
Castle Trust has launched a guide to saving for children and is urging parents to shop around for the best deals and consider other methods of saving, including its own investment products, HouSAs, which enable parents to invest efficiently in the national housing market via JISAs or ISAs and which provide returns in excess of the Halifax House Price Index.
Sean Oldfield, Chief Executive Officer, Castle Trust said: “Child Trust Funds have helped to encourage saving for children and proved to be a relative success in enabling parents to put money aside.
“But rates on cash CTFs have slipped back and there are issues about a lack of choice as providers focus on products that are open to new business, including Junior ISAs. Saving for children is by definition a long-term investment and it makes sense to maximise returns by regularly reviewing where you are saving.”
Castle Trust’s Growth and Income HouSAs are suitable for ISAs and Junior ISAs and can be taken out for terms of three, five or ten years.
The capital value of the Income HouSA tracks any rise or fall in the Halifax House Price Index and pays an annual income of between 2% and 3%, depending on the term of the investment while the Growth HouSA offers a multiple of between 1.25 times and 1.7 times any increase in the Halifax House Price Index and limits the loss to between 0.75 times and 0.3 times any decline. Both are available for investments of between £1,000 and £1million.
Castle Trust also offers a new type of shared equity mortgage, the Partnership Mortgage, which is for 20% of the value of an owner occupied home alongside a repayment mortgage of up to 60% from a traditional lender and a deposit (or equity, if remortgaging) of at least 20%. There are no monthly commitments on the Partnership Mortgage and Castle Trust will share 40% of any profit made by the homeowner when they sell or come to the end of the mortgage term. The company will also share 20% of any loss made on a home bought with a Partnership Mortgage.
The Castle Trust guide to saving for children is available at castletrust.co.uk/savingforchildren.