Parents put faith in cash accounts

When given the option, the majority of parents are choosing to invest their child trust fund vouchers in cash accounts.

In June, 70 per cent of the accounts taken out were for cash rather than stakeholder funds, the Building Societies Association (BSA) reveals today.

Under the child trust fund scheme parents of children born after September 1st 2002 have been sent a voucher worth at least £250 to invest on their child's behalf.

They can choose where to invest the voucher, and whether they want a stakeholder account that invests in shares and other assets or a cash account that builds up interest like a standard savings account.

Once opened the account builds up interest tax-free, and family and friends can contribute up to £1,200 extra a year. The money can be withdrawn from the account from the child's 18th birthday onwards.

In June 2005, more than 50,000 child trust funds were opened by the eight providers offering both cash and stakeholder accounts, the BSA reports.

However, recent surveys revealed that there are more than a million vouchers that have yet to be invested, with one voucher in four possibly lost.

If the voucher is not invested in the first 12 months after its issue, the government invests the voucher on the child's behalf in a stakeholder account.

"It is still early days, but the BSA's second set of figures show that when given the choice, most parents are choosing cash child trust funds for their children," said Brian Morris, head of savings policy at the Building Societies Association.

"Anecdotal evidence suggests that many parents have still not decided where to put their child's voucher. We believe that parents should have the choice between cash and equity investments and building societies are helping to give them that choice."