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Last Updated: Tuesday, 11 January 2005, 14:14 GMT
Children's savings plan launched
A father holding his child
Children born since September 2002 will qualify
A new savings scheme for children has been officially launched by the government.

Children born on or after 1 September 2002 will receive 250 each, rising to 500 for low-income families.

The money must be invested in a Child Trust Fund and cannot be accessed until the child is 18 years old.

Each fund may also be topped up by families or friends with extra contributions up to a maximum limit of 1,200 a year.

Details of the 75 providers offering the funds, designed to encourage saving, were announced by the Chancellor Gordon Brown.

'Hollow gesture'

It is hoped the money will ultimately help towards expenses such as college costs or for a deposit on a home.

"The Child Trust Fund is designed to ensure that every child in our country has assets and wealth and that no child is left out and all children in Britain have a stake in the wealth of the nation," said Mr Brown.

But the Liberal Democrats said any benefit would be overshadowed by the rising cost of university tuition fees.

"For those who choose to go to university it is a particularly hollow gesture as the government will give them a few hundred pounds in cash and at the same time a mortgage-style bill in tuition fees," said Phil Willis, Liberal Democrat education spokesman.

Savings pot

To be eligible for an additional 250, families must receive the full Child Tax Credit, which means their income must be less than 13,480.

What the Child Trust Fund could be worth
500 with 5% annual growth would become 1,000 in 18 years
500 with 7% annual growth would become 1,410 in 18 years
500 with 9% annual growth would become 1,970 in 18 years
Source: Virgin Money

The government has promised that in addition to the initial payment, it will make another payment to children on their seventh birthday.

From next week nearly two million UK families will receive vouchers.

The vouchers must be invested in a Child Trust Fund - a tax-free savings account - which will be available from a range of companies from April.

Parents that do not invest the government's gift within a year will have it invested for them by the Inland Revenue.

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