So what can – or should – 18-year-olds do with their child trust fund windfall?
If given £5,000 today, almost eight out of 10 teenagers would choose to save at least part of the money, with coronavirus having led to increased caution, according to research earlier this month from CTF provider OneFamily.
But equally, some will want to splash out – perhaps on a car, laptop or new mobile phone.
The basic options are:
• Cash it in Ask your CTF provider to hand over the money and get it paid into your current account.
• Transfer it into something like an Isa
• Do nothing If you do nothing with the money, your CTF provider will either transfer it to an Isa (if it offers one) or move it into a “protected” account, where it will await the account holder’s instructions.
If you want to keep the money saved, the account or fund you pick will depend on what you plan to use the cash for, says Laura Suter at investment platform AJ Bell.
If you know you will need the money in the next five years, it is probably best to go for something like a cash Isa, she says.
If you think you might put the cash towards buying your first home, a lifetime Isa may be the way to go. You have to be between 18 and 39 to open one, and they let you save for either a property or retirement. You can put away up to £4,000 each year and receive a government bonus of 25% (ie, up to £1,000) a year. The money invested can be withdrawn if you are buying your first home or age 60-plus. There are some strings attached, so you need to make sure you are happy before signing up.
If you know you won’t need the money for the next five years or so, you could transfer it into a stocks and shares Isa and potentially earn higher returns than with a cash savings account.
Those who don’t feel confident about investing might want to look at “all in one” funds that spread your money between different stock markets and asset classes. The Vanguard LifeStrategy funds are worth considering, says Suter.
Alternatively, first-timers could go for a cheap tracker fund that mimics the performance of a broad global index such as the MSCI World. For example, Fidelity has the Index World Fund.
For some of those turning 18 over the coming weeks, Covid-fuelled stock market falls will have dented the value of some accounts, according to investment platform Interactive Investor. Some people’s pots could be worth a lot less than they were at the beginning of the year, it says.
