Important information – the value of investments can go down as well as up, so you may get back less than you invest.

Next Tuesday is a big day for anyone who turns 18 later this year. While the milestone birthday is always a good reason to celebrate, this year’s batch of newly-fledged adults who turn 18 from 1 September onwards, have another reason too - because they are likely to be sitting on a financial windfall.

That’s because Tuesday 1 September marks the day the Child Trust Fund (CTF) comes of age. This means thousands of teenagers who also turn 18 from the 1 September 2020 onwards, will, on their own 18th birthday, be able to get their hands on money that was invested for them before their very first birthday.

Back in September 2002 the parents or guardians of every baby born from then until 2 January 2011, were sent a £250 voucher to set-up a child trust fund in their child’s name. Parents on a low income at the time would have received a £500 voucher. This voucher had to be used to set up a Child Trust Fund account in the child’s name.

Parents had 12 months in which to use the voucher. If that didn’t happen, for whatever reason, then the government would have saved the £250 into a cash CTF in the eligible child’s name on your behalf.

If that’s your child, then it’s likely that you, and they, will be sitting on windfalls they know nothing about. Estimates suggest that as many as two million teenagers have a child trust fund in their name that they either know nothing about, or they and their parents have simply forgotten about. According to HMRC, as much as £2.5 billion is thought to be sitting idle in child trust funds taken out for children who’ve since lost track or forgotten their accounts.

And if that is you or your soon-to-be 18-year-old, then tracking down that lost child trust fund may be well worth it. Bearing in mind that all money earned on the child trust fund is tax-free, including capital gains, interest payments and any other money earned on the account, a decent sum can have built up, even if nothing more was added.

As a rough guide, a dormant child trust fund with just £250 contributed from the government in 2002 and nothing more added, could be worth over £800 by now, if it had been invested in a FTSE 100 tracker fund. And with an estimated £9.3 billion invested in child trust funds in the UK, the chances are that many 18 year olds whose parents topped it up over the years, will be sitting on substantially more.

What these ‘hidden’ windfalls highlight is just how powerful the power of compounding and time is on even very small sums invested. And how the benefits of youth can really add up if you save diligently for a child.

Child trust funds have since been replaced by the Junior ISA, and with the ability to save up to £9,000 a year into one, they are a great way to save for a child’s future.

Opting to invest a regular monthly sum makes saving achievable and hassle-free. You can save as little as £50 a month into their Junior stocks and shares ISA and choose where the money is invested, while still being able to add lump sums, where possible.

You can even start them on their investment journey, by getting them involved when it comes to choosing the funds they invest in. Our Select 50 range of funds covers all areas of investing from UK and international equities and bonds to gold and property, enabling them to take an active interest in where and how their money is invested. Or make it simpler still by investing in our Select 50 Balanced Fund and getting access to the ‘best of the best’ of the Select 50 range in one simple fund.

Start your child’s Junior ISA today

To trackdown a lost Child Trust Fund, even if you don’t know the provider, go to the website and fill in the claim form.

Five year performance

(%) As at 24 Aug 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
FTSE 100 20.6 12.7 6.5 -2.1 -10.9

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns as at 24.08.20, in local currency

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. The Fidelity Select 50 Balanced Fund invests in overseas markets and so the value of investments can be affected by changes in currency exchange rates. It also uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. There is also a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Currency hedging is used to substantially reduce the risk of losses from unfavourable exchange rate movements on holdings in currencies that differ from the dealing currency. Hedging also has the effect of limiting the potential for currency gains to be made. The Fidelity Select 50 Balanced fund investment policy means it invests mainly in units in collective investment schemes. Please note that this information and our guidance tools are not a personal recommendation in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.

Topics Covered

Investing for capital growthInvesting for children;  Investing ideasJunior ISAPersonal financeRegular savings; SharesUK

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