Gap widening in child trust fund savings war

  • 2.75% between best and worst deals, says MoneyExpert.com

Parents are being urged to reassess their Child Trust Funds (CTFs) as the gap between the best and worst accounts widens.

MoneyExpert.com research* shows that average standard interest rates on cash Child Trust Funds have increased by some 1.19 per cent in the past year from 5.15 per cent in October 2006 to 6.34 per cent now.

But the independent financial comparison website says the ongoing savings price war has created a widening gap between the best and worst CTF deals.

MoneyExpert.com’s research shows that at the end of last year the worst paying CTF was only 1.75 per cent below the best buy. However the website’s latest figures show the gap has increased to some 2.75 per cent.
A family that invests the maximum £1,200 in the first year only would lose out to the tune of around £1,780 over 18 years if they took the worst deal compared with the best, according to MoneyExpert.com

But the losses could be far higher – the website says a family investing the full £1,200 every year for 18 years could potentially miss out on as much as £12,164 in unpaid interest.

Sean Gardner, Chief Executive of MoneyExpert.com, said: "The gap between the best and worst CTFs is too large to ignore. Many parents are planning to build up a healthy savings pot for their children and CTFs are a great way to do that."

"However, just how much money your kids will eventually be able to access depends to a large extent on the decisions you make now."

"The rises in the Bank of England base rate over the past year has sparked something of a savings price war, and that has extended to Child Trust Funds. If you are careful there’s nothing to stop you from getting a great deal."

"However there are some poor deals out there and parents should move – or risk a nasty conversation when their child turns 18."

Parents with a cash CTF can earn as much as 8 per cent tax free with Hanley Economic Building Society. The lowest headline rate on the market is some 2.75 per cent lower at 5.25 per cent with Abbey.

MoneyExpert.com figures show there are 12 different cash CTF providers. Just over half offer headline rates of over 6 per cent although only two have deals of 7 per cent or more.

A maximum of £1,200 each year can be saved in a cash CTF by parents, family or friends on top of the minimum amount of £250 provided by the Government to start the account.

In addition to cash accounts parents with child trust fund vouchers to invest can also choose riskier share-based accounts or stakeholder accounts with a spread of investments.

* Source: MoneyExpert.com analysis, 18.10.06 & 17.12.07

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