Hidden bank account charges that could leave thousands with £100s less than expected – how to avoid it
A HIDDEN charge could leave thousands of bank account holders with far less cash than they had expected.
Child Trust Funds are long-term, tax-free savings accounts which were set up for every child born between September 2002 and January 2 2011.
The Government deposited £250 for every child during that time period, or £500 if they came from a low-income family earning around £16,000 a year or below.
An extra £250 or £500, depending on their families' economic status, was deposited when the child turned seven.
In 2010, this was reduced to £50 for better-off households and £100 for those on a lower income.
Recent figures suggest that the average amount in each account is £2,212.
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The money stays in the account until it’s withdrawn or re-invested.
But it's important to note that the savings in these accounts are not held by the Government - instead they're held in banks, building societies or other saving providers.
Because of this, it means they are subject to each individual bank's charges and fees - something not every holder will be aware of.
These pesky fees can eat away at the holders' savings leaving them with far less than they thought when they come to withdraw the cash.
The National Audit Office estimates that CTF providers could be earning collectively up to £100million per year through charges on accounts
That's what happened to Max Prince . When he turned 18 he got the Child Trust Fund his parents opened when he was born.
Experts say this "horror" has always been lurking and that it's "vital" anyone with a fund checks charges regularly.
Sadly Max discovered hidden fees had left him with only £12.39.
Max was one of the six million kids who got at least £250 to kickstart the trust funds between 2002 and 2011.
His family had hoped that by his 18th birthday the pot, which is tax-free, would have increased in value.
The bank account had been moved over to the investment firm Columbia Threadneedle - which was applying a £30 annual charge to the fund.
Columbia Threadneedle said it had written to Max's parents about the fee but the letters had been returned unopened.
The family had changed addresses a few times over the 18 years so had never received them.
This meant that slowly the £30 charge had eaten away at practically all of the savings in the pot.
Columbia Threadneedle said this outcome was not what it would want for "any of our customers".
When then Chancellor Gordon Brown set up Child Trust Funds, they came with strict rules on how much could be charged in fees.
The maximum fee allowed to be charged on Child Trust Funds was set at 1.5% - but only for stakeholder investment accounts, not other investment CTFs.
According to the BBC, Max was effectively charged 10% and more each year - far higher than the maximum 1.5%.
About four years ago the first of the funds started maturing when those kids turned 18, and they were notified that they could access their pots.
Max said: "We'd been expecting this letter for a while, I mean we'd been waiting for it for 18 years basically.
"So when me and the family one morning opened this letter, expecting to find at the very least £300 or so, we instead saw the number £12.39. Not £120, not anything… just £12.39."
He added that it was "shocking" and "kind of outrageous".
It's unexplainable I think would be the best way of putting it.
Max Prince
Bank statements reportedly show that by 2012 the fund was worth just over £300.
But then in 2013, the £30 annual administration charge started being applied to the account - which Max's parents said they knew nothing about.
Columbia Threadneedle has just over 30,000 Child Trust Funds still open - the average value of open CTFs is just over £13,500, it said.
According to the firm, the type of account chosen by Max's parents was a CTF Shares account, which has a different fee model.
This meant that the £25 plus VAT charge, which is taken six monthly in arrears in April and October, was for administering the account, not the underlying investment.
In February 2013, the firm wrote to all CTF Shares account customers to inform them an annual management charge (AMC) was being introduced.
It said it asked customers to consider whether its CTF shares account remained suitable for their investment needs, but Max's parents' letter was returned unopened.
The firm said its Child Trusts Funds "require customers to actively make their own investment decisions and without authorisation and communication from customers, we are unable to take action on their behalf".
Max's parents are said to not be particularly happy with this explanation and will contact the firm to complain.
Max said: "In the grand scheme of things it can't be a lot of money for the company, right? It's only around £300, so it is unfair in my opinion.
"You could say cruel. It's unexplainable I think would be the best way of putting it."
Columbia Threadneedle Investment said it will continue to review its product range and that it recognises some customers have not received the outcome they hoped for.
A spokesperson said: "Our ongoing duty to the consumer is important to us and we continually review our product range and the outcomes they deliver for clients on an ongoing basis. As we assess our Child Trust Funds, we will place a specific focus on identifying other similar situations to assess, as appropriate, what action we can take.
"We were explicit in the letters sent to customers when we introduced the annual charge, using best practice pounds and pence clarity about the costs that a customer’s Child Trust Funds would be incurring, giving 60 days’ notice to allow time for customers to decide if the product met their needs.
"As is evidenced in this customer’s case, our Child Trusts Funds and Savings Plans require customers to actively make their own investment decisions and without authorisation and communication from customers, we cannot take action on their behalf.”
What do the experts say?
"This horror was always lurking because the charges some companies imposed on child trust funds were so high they ran the risk of eating the fund away completely," said Sarah Coles, head of personal finance at Hargreaves Lansdown.
Ms Coles added that some companies found the administration of so many smaller pots an expensive business and decided to pass the costs on.
"They will have let people know about the changes, but if they had moved house and not updated their details, they may never have known, she added.
It’s absolutely vital that anyone with an investment child trust fund checks the charges Ms Coles warned.
She said: "Even if they have a stakeholder account, they may be paying over the odds."
Myron Jobson, senior personal finance analyst at Interactive Investor, said what happened to Max is "shocking".
He said: “The National Audit Office estimates that CTF providers could be earning collectively up to £100million per year through charges on accounts – so it pays to act quickly.
“If you know the provider where the Child Trust Fund is held, the first port of call should be to contact them directly. If you don’t, you can ask HMRC. They can tell you where the account was originally opened.
“For the youngest holders, there are still five years before their Child Trust Fund reaches maturity."
How to track down a child trust fund
Mr Jobson said: "Many young adults might not be aware that there is a cash pot in their name waiting to be claimed. With the typical CTF valued at £2,212, this cohort could be sleeping on a decent amount of money that could boost their financial resilience amid the cost-of-living crisis.
“In many cases, CTFs have been forgotten along the way as Junior ISAs took centre stage."
New figures released by the HMRC have found that more than 670,000 18-22-year-olds are yet to claim their Child Trust Fund.
Angela MacDonald, HMRC’s second permanent secretary and deputy chief executive, said the government wants to "reunite young people with their money and we’re making the process as simple as possible."
She added: "You don’t need to pay anyone to find your Child Trust Fund for you, locate yours today by searching ‘find your Child Trust Fund’ on GOV.UK.”
If you were born in the UK between 2002 and 2006 it is worth checking to see if you have cash in a Child Trust Fund.
Parents were either given a voucher to set one up or HMRC set one up on a child's behalf.
Several third-party groups are offering to search for Child Trust Funds but it is worth noting that they will charge a fee so you might lose a chunk of your money.
The Government has a free tool you can use online to help track down your fund.
You can find this by searching for "find a Child Trust Fund" on GOV.UK.
You'll need to have a few personal details to hand to do the search, including your date of birth and National Insurance (NI) number.
Your NI number remains the same for your entire life. It's made up of two letters, six numbers and a final letter.
You can find this number on your payslips or by downloading the HMRC app, which can be downloaded on the Apple or Google Play Store.
When you're done filling this out, HMRC will then send you a letter revealing what company has your Child Trust Fund.
Lost Child Trust Fund cash
BY Charlene Young, pensions and savings expert at AJ Bell.
MANY parents and children aren’t aware they even have the account or don’t know who the money is with or how to track it down.
More than a quarter of CTF accounts were set up by the government because parents failed to do so within the 12-month window.
This highlights why so many are unclaimed – as the parents either weren’t aware or won’t remember that an account was even set up for their child, let alone where the money is now.
Any child born between 1 September 2002 and 2 January 2011 who hasn’t already got details of their account should track it down.
Once you’ve tracked down the money you can choose what to do with it. Your options are to transfer it to an adult ISA or withdraw the money. Until then your money will just sit in an account that no one else has access to, possibly paying very high charges.
Anything you transfer to an adult ISA at maturity will not count towards your annual ISA allowance, which is £20,000 for over 18s.
For many young people who have CTFs but are still under 18, it will make sense to transfer it to a Junior ISA, where the charges will likely be lower, and you’ll have a much bigger investment choice.
The money will still be locked up until you turn 18, but the tax-free benefits of ISA investing still apply. You can transfer the entire CTF into a Junior ISA and still add up to £9,000 to it in the same tax year.
What to do once you have claimed the money
Usually, people put the cash straight into a bank account, invest it, or transfer it into an ISA.
Ms Coles said: "The money can be switched to a Junior ISA, which has all the same tax benefits and generally lower charges – some providers don’t charge anything at all for the JISA wrapper.
"If they have a cash child trust fund, they also need to check the interest they’re making, which in many cases can be beaten by cash JISAs."
Mr Jobson echoed her thoughts and said a JISA is a "no-brainer".
He said: "If you hold a Child Trust Fund for your child, it is worth considering transferring to a Junior ISA.
"It is a no-brainer in most instances as Junior ISAs tend to have better rates on cash savings, more investment options and lower charges."
You can also ask your Child Trust Fund Provider to give you the money and get it cashed into your bank account.
This way you'll need to share the bank account details you wish to transfer the cash into with HMRC.
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But if you'd rather invest it, you can transfer it into an ISA.
The Sun recently broke down whether or not an ISA is right for you, which you can read here.
Where to find the best savings rates
Many savings accounts offer miserly rates meaning that money is generating little or no return.
However, there are ways to get your cash working hard. Sun Savers Editor Lana Clements explains how to make sure you money is getting the best interest rate.
Easy access savings accounts offer flexibility for customers, meaning they can dip in and out of cash when needed. However, the caveat is that rates can change at any time.
If you're keeping your money in an easy access account, you'll need to keep checking whether it's the best paying account for your circumstances and move if not.
Check in at least once a month to see what is happening in the market.
Check what is offered by your bank - sometimes the best rates are for customers only.
But do search the wider market as often top savings accounts are offered by lesser known providers.
Comparison sites are a good place to check for the top rates. Try Moneyfactscompare.co.uk or Moneysupermarket.
You can search by different account type. You'll usually get a better interest rate if you can lock your money away for a fixed amount of time, but it's always a good idea to keep some money in an easy access account in case of emergencies.
Don't overlook regular savings accounts often pay some of the best rates, but you'll need to commit to monthly payments. This can be a great way to get into a savings habit while earning top rates at the same time.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.