How to make the most of the forgotten thousands in child trust funds

Is there a pot of thousands of pounds out there with your name on it? HM Revenue and Customs is better known for demanding money than dishing it out, but last week it urged hundreds of thousands of young people to come forward and “cash in their stash”.

The tax authority says 671,000 people aged 18 to 22 have a child trust fund account that has matured, is worth £2,082 on average, and is sitting unclaimed. However, those 671,000 matured pots of cash represent a small fraction of the millions of child trust fund (CTF) accounts out there.

The latest official data shows that there are about 4.2m CTF accounts in existence in total, though many of them appear to have been forgotten or neglected. In all, nearly £10bn is sitting in CTF accounts, several billion pounds of which is money that the government coughed up.

And last week, parents and youngsters were being urged to use the HMRC announcement as a prompt to check how their CTF was getting on and to think about whether it would make more sense to transfer the cash to an account offering a better return and/or lower charges.

What are CTFs?

CTFs, nicknamed “baby bonds”, are long-term, tax-free accounts for children that were launched in 2005. More than 6.3m were opened before they were scrapped in 2011. They were replaced by junior Isas.

Every child born between 1 September 2002 and 2 January 2011 was awarded a cash “endowment” of, typically, £250. Some children received top-up payments from the government, and family and friends have been able to pay money in, too. In autumn 2020 the first CTF children began turning 18, kicking off a multibillion-pound payout that will run all the way through until early 2029.

It has been estimated that each month about 55,000 teenagers, about 1,800 a day, turn 18 and become entitled to a pot of cash with their name on it.

The oldest CTF children – the ones who still haven’t claimed their pot of cash or transferred their account – turned 22 this month, while the youngest are 13 and a half.

Roughly a third of that £10bn is money that was awarded by the government, with contributions from family and friends and investment growth/interest making up the rest.

In terms of the accounts, broadly it was a choice between cash savings accounts and ones that predominantly invested in shares. The money is not held by the government but is in banks, building societies and other savings providers.

It’s their cash

With a CTF, the money belongs to the child, though they can only take it out when they are 18, at which point they can spend it, or reinvest it in an adult Isa.

This is money that probably should be used wisely – perhaps invested, or to help with university or gap-year costs, or pay for driving lessons – but ultimately, once they reach 18, it can be spent on anything at all, which might mean they end up blowing it on freshers’ week partying or a boozy pals’ holiday.

The unclaimed pots

HMRC says thousands of CTF accounts belonging to 18- to 22-year-olds are sitting unclaimed, adding: “We want to reunite young people with their money, and we’re making the process as simple as possible.”

Many youngsters will be unaware that there is a CTF account in their name. After all, they were opened a long time ago, and some parents will have simply forgotten about them and possibly moved house. In addition, their account might have been transferred to another provider a few years ago.

If the young person (or their parents) already knows who their CTF provider is, they can simply contact them directly.

If they don’t know where their account is, they can use the online tool on the gov.uk website to find out their provider. Young people will need their national insurance number and date of birth to get hold of the information.

The Share Foundation, a charity, has been working with the government to help young people to find their accounts, and runs its own free-to-use search service. Go to findctf.sharefound.org and you will find a simple form you can fill in. If necessary, this will be forwarded to a special department at HMRC.

To date, the Share Foundation has reunited more than 65,000 young people with their CTF accounts.

Be aware that there are third-party companies advertising their services online who say they can help to track down people’s accounts, but they will always charge: HMRC says it found one asking for up to £350 or 25% of the value of the account. Do not pay to find your fund.

If your child is under 18

The latest data shows that the vast majority of CTF accounts did not have any money paid into them during the 12 months from April 2023 to April 2024. That suggests that many have been forgotten.

If you hold a CTF for your child, you have a number of options. For example, you can leave it as it is, or you could transfer it to another CTF provider.

If you have a cash CTF, check what interest rate you are getting. If it is paltry, the Leicestershire-based Earl Shilton building society has one called a Cash Savings Account (Non-Stakeholder) that accepts transfers in and is currently paying 4.3%. It can be managed by post or at its branches.

Since 2015, anyone with money in a CTF has been able to transfer it to a junior Isa, and for many that will probably be the wisest thing to do, as they will usually be able to get a better return.

Top-paying junior cash Isas that accept transfers in from CTFs include the Stafford building society’s account, which pays 4.75%; Coventry building society’s Junior Cash Isa (2), which pays 4.7%; and Tesco Bank’s Junior Cash Isa paying 4%. Several smaller building societies have Junior Isas paying decent rates, but there are sometimes restrictions on who can open them.

You can check the latest junior cash Isa rates and details on the website of the financial data provider Moneyfacts.

Are you being overcharged?

If you have an investment CTF, you may be paying too much in charges because junior investment Isas usually have lower fees.

As highlighted by a parliamentary report published last year, many CTF providers are charging “huge sums” for managing the accounts, eating into people’s money, says Charlene Young, a savings expert at the investment platform AJ Bell. “The report indicates many accounts are charging 1.5% annually for a portfolio of passive funds, whereas a junior Isa on a modern platform might cost around 0.25%, plus the cost of a tracker, which can be as little as a few basis points,” she adds.

On top of that, CTFs often offered a fraction of the investment choices available through junior Isas, many of which offer a vast range of funds, shares and other investments to choose from.

A good first port of call for a Junior investment Isa may be a platform such as AJ Bell or Hargreaves Lansdown, both of which accept transfers in and have lots of useful information on their websites. Both firms will let you invest from £25 a month.