Topping up your Child Trust Fund
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If your childcare costs have gone down as a result of your child starting school, now could be a good time to consider topping up your Child Trust Fund, or raising your contributions if you are already topping up.
Don’t forget you can put in up to £100 a month or £1,200 a year, and this can come from a variety of sources; parents, grandparents, other relations or friends.
If you just put your first child’s Child Benefit into the CTF, you would be well on the way to the maximum top-up, with contributions of £1,040 a year at the current Child Benefit rate of £20 a week (it is £13.20 for second and subsequent children).
The cost of delay...
If you wait until your child starts school before you start topping up their Child Trust Fund, the amount to which it could potentially grow takes quite a big hit.
With the maximum £100 a month invested from day one, and assuming a growth rate of 6% a year - though this is not guaranteed and the value of investments can go down as well as up; your child’s fund could be worth £38,281 by the time they are 18.
If you don’t top up until they reach age five, and then start contributing the maximum £100 a month, at the same rate of growth they would have £23,388 at age 18, and this falls to £16,326 (still quite a tidy sum) if you leave it until their eighth birthday.
You may prefer to save in another kind of account or savings plan with greater flexibility, but the message is the same: the longer the period over which you invest, the more time your money has to benefit from the effect of compounding, whereby the gains already made increase the amount available to participate in future gains.
Don’t worry if you can’t afford to top up your child’s CTF to the maximum or to save a similar amount elsewhere.
As the advert says, every little helps.
View other relevant articles here, giving information on Pocket Money and Financial Education.
