Ask Sindie: The £250 question: a tale of three trusts

Your money problems solved

Q: In the hurly-burly of moving home in March, we lost the £250 voucher for our new son's child trust fund (CTF).

Q: In the hurly-burly of moving home in March, we lost the £250 voucher for our new son's child trust fund (CTF).

I've written twice to the Inland Revenue but have heard nothing back. However, my husband says it doesn't matter since we can open an account over the phone.

Is he right? I'm worried that we've already lost too much time by failing to invest the cash.

PW, Norwich

A: Don't worry: you're not alone. Recent figures from three of the UK's largest saving banks suggest take-up of the voucher has been poor, and Nationwide building society estimates that only a third have been invested so far, even though the scheme has been live since early April.

Although there will be others, like you, who have mislaid CTF vouchers, it's generally the case that many parents have just not got round to investing them, lenders believe.

Whatever the reason for the delay, the damage is a loss of interest on this initial £250 investment from the Government, given to all babies born after 1 September 2002.

To get your son's replacement voucher, call the Inland Revenue's CTF helpline on 0845 302 1470 between 8am and 8pm. There is no charge for the reissue.

While your husband is technically right to say that you can open the account immediately, you will still need to obtain the voucher and send it off to the investment firm that you have chosen to manage your son's money. Only at this point can the £250 - and any extra cash (up to £1,200 a year) you add yourself - start growing tax-free. So, once the Revenue has sent you a replacement voucher, don't spend too much time deliberating about where to invest it.

A number of surveys have underlined parents' uncertainty over whether to invest in the stock market or leave the cash in a deposit account instead. Nationwide reports that the 100,000 accounts so far set up with it are split 60:40 in favour of cash-deposit CTFs versus stakeholder funds that invest in the market.

However, most independent financial advisers suggest that, since the cash is to be locked away for 18 years, it should go into a fund that exposes the money to the markets.

There are two reasons for this. First, 18 years should be enough to ride out the economic cycles that afflict shares from time to time, ensuring healthy returns.

Second, under an approach known as "lifestyling", stakeholder CTFs will gradually move your child's money out of the market and into safer cash and bond investments once your son is 13. This way, the gains made over the years won't be wiped out by a big drop in shares just when the fund is nearing maturity and there is no time to repair the damage.

Q: My partner and I agreed to put our £250 CTF voucher into a Nationwide cash savings account. But, having done so, we've changed our minds and now wish to move to a Liverpool Victoria stakeholder CTF investing in shares.

Can we do so and is there a charge?

BH, Forest of Dean

A: As a rule, you can switch between providers without paying a fee.

Just contact Liverpool Victoria and tell them you want to switch. It will then contact the building society on your behalf and the money you've invested in the CTF will be transfered electronically to Liverpool Victoria.

Bear in mind that the switch to a stakeholder will mean you now pay a charge for the company to manage your money.

Cash deposit CTFs don't levy a fee, as providers simply look after your money. But when the money is invested in stock markets, there are share-dealing, management and administration charges - albeit capped at 1.5 per cent. For Liverpool Victoria's stakeholder CTF, the annual charge is 1.45 per cent.

Q: Like many others, it seems, I have absolutely no idea where to put our £250 voucher. But I understand that if I don't do anything, the taxman will invest it in a stakeholder for me anyway - where it will probably do better than it would in a cash fund.

Or am I making a big mistake?

JW, Hampshire

A: You're right that doing nothing will prompt action by the Revenue.

From the date that a CTF voucher is issued, a clock begins to tick.

If you don't invest it within a year, the taxman will pick a stakeholder fund for you entirely at random, and you'll simply be notified by letter.

There is something to be said for letting the Revenue choose for you: as discussed above, its decision to pick a stakeholder CTF instead of a cash one is in line with the views of advisers. However, different funds will invest your cash in different ways - with some, for example, taking more risks in the pursuit of higher returns. So it is worth taking the time to look at various funds and see which appeals most to you.

The place to start is www.childtrustfund.gov.uk, a website packed with information outlining all the different options available.

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.