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Last Updated: Tuesday, 22 November 2005, 11:22 GMT
Child trust funds 'lose momentum'
The number of new child trust fund (CTF) accounts being opened has dropped to its lowest level yet, the Building Society Association (BSA) has said.

The BSA said 26,000 accounts were opened in October, down 5,000 on the previous month.

Sales of CTFs have "lost momentum" since the summer, the BSA said.

Parents issued with CTF vouchers last April have a year to pay them into an account or have the government do it for them.

Initiative

The CTF is a government savings initiative, aimed at encouraging children to save and to help them get a start in life.

There is an issue of public financial education here... It seems many parents, as yet, do not understand child trust funds
Brian Morris, BSA

Every child born in the UK on or after 1 September 2002 was given at least 250 as a starting voucher.

Families on low incomes received an additional 250.

The government will also top up accounts on the child's seventh birthday.

Nearly halved

Parents have been allowed to invest CTF vouchers, on their child's behalf, from last April.

There was an initial rush of account opening. In April 61,000 CTF accounts were opened according to the BSA.

The BSA collates sales figures from all providers offering cash and stakeholder CTFs, not just building societies.

Since June sales of new CTF accounts have nearly halved, the BSA said.

"There has been a certain amount of lost momentum during the summer and this has continued into October," said Brian Morris, head of savings policy at BSA.

"There is an issue of public financial education here... It seems many parents, as yet, do not understand child trust funds."

If parents fail to invest their voucher within a year of issue the money is automatically paid into a stakeholder CTF account of the government's choosing.

"Stakeholder CTFs invest in equities and this means that there is the risk of capital loss. With cash deposit CTF accounts there is no risk," Mr Morris said.

"Stakeholders may not suit the approach to risk of many parents. After all, when people are presented with the choice of investing in a stakeholder or cash deposit CTF account, 70% go for cash," he added.


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