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Anew investment account designed to encourage parents to save money for their children starts in April. The government is introducing the Child Trust Fund, (CTF) to help build up a "nest egg" for these children when they reach 18.

The government will make two payments to the account. The first payment of £250 or £500 will be made shortly after the child is born and the second, when it reaches the age of seven. We don't know yet what the second payment will be. Children born between 1 September 2002 and April 2005 will get slightly more than £250, to compensate them for the delay in setting up CTFs since they were announced in 2002. Families and friends will also be able to contribute to the child's account, up to a maximum of £1,200 per year.

Government payments will take place via vouchers. Because children will be identified from child benefit records, the Inland Revenue will be making the payments. Families who are prevented from claiming child benefit because of their immigration status will also be denied CTF payments. Children who are looked after by the local authority will still be eligible, however, even though child benefit is normally suspended when a child goes into care.

If a child is eligible, a voucher worth £250 will be sent to the person who has claimed child benefit. Children from families in receipt of child tax credit with an annual income of less than £13,480 will receive an extra voucher worth £250. This creates another reason to promote tax credits for low-income families. Many families on income support and jobseeker's allowance have yet to be transferred onto child tax credit because of the Inland Revenue's computer problems, yet they should still be entitled to the full £500. Looked-after children will also receive £500 payments in their accounts.

All parents with "qualifying children" should have been sent information about CTF in December, and the first vouchers should be sent to parents between January and March. There is no need to make claims for looked-after children who are eligible, as the Inland Revenue has promised it will open "stakeholder" accounts on their behalf. However, local authorities will have to give details to the Inland Revenue of all eligible looked-after children.


Most high street banks and building societies will be offering CTF accounts, as will several friendly societies. Parents or other carers will have to decide which account to open and with which provider, from an Inland Revenue list and some parents may come to you for advice. Some accounts will be secure "savings" accounts while others are based on investments in shares. Over the long term, the latter may be a better bet. However, you should not give this kind of advice - unless you are an independent financial adviser registered with the Financial Services Authority.

The CTF is not taxable, and won't be taken into account for any benefits the family may claim. Money in the CTF belongs to the child, and they won't normally be able to access the money until they reach 18. However, children who are terminally ill can access their CTF
earlier.

For more information about CTFs, contact the Inland Revenue child trust funds helpline on 0845 3021470 or visit www.childtrustfund.gov.uk

Gary Vaux is head of money advice, Hertfordshire Council. 
He is unable to answer queries by post or telephone. If you have a question to be answered please write to him c/o Community Care