New research by the Building Societies Association shows that 26 per cent of the 889,000 Child Trust Fund accounts opened by the end of August were cash deposit accounts, earning interest of no more than 5 per cent a year.
Over the past 18 years, £250 invested in cash would now be worth about £650. The same amount invested in equities would be worth almost £1,500.
The most recent equity-gilt study from Barclays Capital shows that, since 1899, equities have outperformed cash in 99 out of 100 18-year periods - and, in the majority of cases, the outperformance has been significant.
Jason Hollands, a director at F&C, the fund management group, said that investing the money in cash over such a long time-frame was pointless.
"We believe people should not be offered the chance to invest in cash when they first open the [CTF] plan.
"Obviously people may want to use cash accounts as the child gets closer to 18, but we believe that, over a long time-frame, it's good to have risk in a scheme.
"If your money's locked up in cash, clearly there will be very little spending power at the end of it," he said.
The Government's CTF scheme, which was launched in April this year, gives parents either £250 or £500, depending on household income, for every child that was born after September 2002.
The money must then be invested, and it cannot be accessed by the child until he or she is 18 years old.
The Government is currently consulting on whether to provide additional top-ups for the fund for children at the ages of seven and 12.
Last month, it emerged that more than a million CTF vouchers have yet to be invested by parents, highlighting many families' lack of understanding of the scheme.
Vouchers not invested within 12 months of the child's birth will automatically be invested into a stakeholder account. These accounts hold about 60 per cent of their assets in equities.Reuse content