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Child Trust Funds and Designated Accounts

Children born after 1st January 2004, will receive a voucher for the Government's latest long-term savings account for children. The account matures when the child attains age 18 and the funds can only be accessed by them.

To enhance the final value, you can contribute a maximum of £1,200 per annum. The fund grows tax-free.

Most banks and building societies offer deposit accounts at varying rates of interest. As these are long-term savings, the final return will be affected by any changes to interest rates and more importantly by inflation.

Therefore, you may wish to consider investing in an investment-linked policy. Once again, the choice is quite varied and should be based on your personal attitude to investment risk, together with consideration of the charges and funds available.

The main disadvantage or concern for parents is the fact that the child gets sole access and control from age 18, which many consider a time that financial awareness is strongest.

Designated Accounts The lesser understood method of saving for children is for the parent to save regularly in an investment policy designated for the benefit of the child at some point in the future.

The parent retains wider control of the decision-making and therefore, can make sure access is granted to benefit the child at the most suitable time. Alternatively, the parent can make withdrawals for relevant needs, to pay for computers and educational needs in the early years.

The tax position can sometimes create misunderstandings, and it is important to remember that children are entitled to the same personal allowances as other people. The nil rate allowance for 2007/08 is £5,025.

Legislation and taxation changes regularly and the availability and suitability of these accounts may change. Our regular reviews will highlight any relevant considerations in future.