Child trust fund dilemmas…

As anyone who knows me will know, a few months ago my girlfriend and I were blessed with our first son… Joshua James.

Like all good parents, we opened a savings account in his name as soon as we could. We get his tax credits paid directly into this account and put as much in there as we can afford so that he has a good start in life when he is older.

Unfortunately last night I got a letter from the bank whom the account is with, telling us that in 2 months time they are going to SLASH the interest paid on this account from the current 5.25% to a lowly 3.65%.

As a result of this, I now have all the fun of looking for another account for the little man, one that gives a reasonable return on his money. I do accept that whatever we get, it’s still likely to be two thirds of bugger all!

This has got me thinking about his £250 gift from the government…

As many of you will know, the government have given every child born since the 1st September 2002 (I think) a gift of £250 to kick-start their savings. This gift can only be used to open a ‘Child Trust Fund’ account that, once opened then locks the £250 away, together with any additional funds deposited, until the child’s 18th Birthday when only they can withdrawal it (and presumably go an almighty bender with it).

Now anyone who has read this blog will probably realise that I don’t hold financial institutions in particularly high esteem. I have an endowment policy that is failing to perform as promised. I have had numerous bank accounts which have had the interest rate inexplicably reduced (without warning in most cases). I have watched pension funds I’ve been in plundered by companies and the government and then I’ve been asked to make up the deficit! And all the while the financial industry posts greater and greater profits.

So what is my beef here? Well I am more than a little concerned with the whole child trust fund thing. I don’t have a problem with saving for my son’s future but I do feel that the trust fund approach is deeply flawed given the financial services track record to date (or that track record I’ve experienced at least). As said above, once opened, the fund locks the money away for a long while. Once deposited you can’t get the money out, so what happens if the financial institution you have entrusted with your child’s future suddenly decides to cut interest rates by 30% to boost profits?

They have you over a barrel and they know it. Once they have your money there is nothing you can do about it. But they won’t actually promise you anything in return, as this would be too risky!

The really annoying thing about it all is that you have no choice in the matter. The money has to go into one of these accounts and the rules are the rules. A very one-way street really!

And the government presumably know all this too!!!!