Find the right home for your child's £250

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The Independent Online

Nearly two million vouchers for the child trust fund will be whizzing their way to families during the next few weeks.

Nearly two million vouchers for the child trust fund will be whizzing their way to families during the next few weeks.

The savings scheme, to be launched in April, will give each baby born after 1 September 2002 a sum of at least £250, rising to £500 for children from low-income families.

It's up to parents to decide where to invest this money, which will grow tax-free until the child's 18th birthday. Families who can afford to will be able to contribute up to £1,200 annually to this nest egg.

When looking at investment vehicles for a child trust fund, you have three basic choices: a deposit-based account, a "stakeholder" fund and a "non-stakeholder" fund.

Go for deposit-based accounts and there is no risk to the money but you should expect only modest growth.

Choose a stakeholder plan and the money will be exposed to the stock market (with the fund manager's charges capped at 1.5 per cent) at first but then switched to lower-risk investments such as bonds and cash as the child nears the age of 18.

The non-stakeholder investment fund option carries higher charges but aims to generate more growth through riskier stock market investments.

Anna Bowes, from independent financial adviser Chase de Vere urges parents to choose now, so the voucher can be invested straight away on 6 April. Do nothing and it will simply be dumped into an Inland Revenue-approved stakeholder fund.

If you want the security of a deposit-based account, you must look for one with a high rate.

"The best accounts pay up to 6 per cent including bonuses, but you'll often have to make extra contributions to qualify," Ms Bowes says.

However, she warns that cash is not the most appropriate option for an investment over 18 years. She says that some building societies are offering stakeholder plans via a friendly society such as the Children's Mutual or Liverpool Victoria. But Ms Bowes's preferred stakeholder plan is available from HSBC - an equities-based account investing in the bank's UK Growth & Income fund.

The Children's Mutual also offers the biggest choice of suitable non-stakeholder funds, she adds.

"It has joined up with four respectable fund management companies, including Gartmore and Invesco Perpetual, each offering three funds."

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