COMMENT
Easy Child Trust Funds

Anyone who's had a baby in the last two and half years or so will probably have received their voucher for the new Child Trust Fund by now. And if you've been wondering where to put it, you're in luck.

The personal finance magazine, Moneyfacts, has evaluated all the schemes on offer (and there are more than 70 of them) and simplified the options. Thank heavens, because 1.7 million vouchers will have been issued by the time the CTF accounts go live on April 6th with an expected 670,000 to be issued in every subsequent year and who wants to have examine the key features of all the different schemes!

Put simply, there are three types of Child Trust Fund: a cash savings account, a stakeholder account where the money will be invested in shares and then gradually shifted into less risky investments after the child's 13th birthday (known as 'lifestyling'), and a non-stakeholder account for the more adventurous parents who want to invest the money in all sorts of things.

Of the three types, I like the look of the stakeholder accounts because the charges are capped by the government at 1.5% a year, transfers between accounts are penalty-free and the 'lifestyling' aspect helps to ensure protection from a falling stock market just as the child becomes entitled to collect his investment at the age of 18.

None of those things are automatically applicable to the non-stakeholder account where annual, initial, dealing and set-up fees can apply. And as for cash accounts - well, the money will be invested for 18 years and the returns on cash just aren't as good as those from the stock market over the long term.

As it happens there aren't actually that many providers of stakeholder accounts - 23 in fact - as most of the 70-odd on the list have just partnered with providers to sell their products. Some offer incentives such as a soft toy, a free weekend break or a book of money off vouchers when you open an account if you think those are of any value. But we can simplify Moneyfacts' evaluation even more by removing those companies investing the stakeholder money into 'balanced managed funds' which would involve investing in growth and income funds among others when, of course, we at The Motley Fool much prefer the simple index tracker.

So, here are the choices involving index trackers:

Source: Moneyfacts

As you can see there are still a couple of companies trying to fudge the issue of charges - the Share Centre's claim of a 0.53% annual management charge but also including an annual account fee of 0.97% being particularly sneaky while F & C Management's explanation in its Terms & Conditions of how it works out the charges are, frankly, confusing. Still at least we know they're capped at 1.5% a year!

Having said all this, if you're investing larger amounts, you may well find it's more cost effective to go the non-stakeholder route. Typical charges for the cheapest UK trackers are around 0.5% a year, so there's a potential saving of 1% a year for 18 years that can be made. However, you need to consider any dealing charges and consider what to do as your child approaches 18, because your money won't be moved to a safer fund whereas it would be in a stakeholder CTF. Comdirect, F&C, Redmayne-Bentley and The Share Centre all offer non-stakeholder CTFs that will allow you to invest in index trackers and other funds.  

Read more on What You Should Do With Your Child's £250 and visit our Saving for Children centre.