How child trust funds work

Which is the right child trust fund for your little treasure? To help you choose, Jobs & Money is now running a table in our best buy guides giving you details of the highest rates on offer for a deposit-based fund.

As the table shows, the best deposit rate is 6%, offered by Britannia and Nationwide building societies. But in the case of Britannia, the rate is introductory only and falls to 4.75% after two years. At Nationwide, the 6% rate is only for those people who can top up their accounts by a minimum of £240 a year, otherwise the rate is 5%.

Look out for deals that are open to local residents only. For example, the Ipswich building society pays a no-strings 6% rate, but this is only payable to people who live in the area.

And don't forget that it's an 18-year investment you are making, and that the "riskier" option of investing in a shares-based child trust fund may, over such a long time period, be the right home for your child's money.

The rules governing child trust funds are relatively simple:

• The scheme will benefit every child born after August 31 2002 by awarding them a government cash handout at birth.

• For most children the handout is £250, in the form of a voucher. But children born between September 1, 2002 and April 5, 2003 get £277. Those born between April 6, 2003 and April 5, 2004 get £268, and those born between April 6, 2004 and April 5, 2005 receive £256.

• In addition to the initial voucher, less well-off families (whose household income is below £13,480 and who get the full amount of child tax credit) get a further £250.

• A further payment will be made on the child's seventh birthday. It is proposed this should be £250 - £500 for lower-income families.

• Parents, grandparents and others can between them put in up to £1,200 a year to help boost the fund's value.

• Any money in a CTF belongs to the child and will be locked in until they are 18. Income and capital gains will be tax-free.

• Parents can open accounts as soon as they receive their vouchers, though no money will go into them until after April 6 this year.

• The government has suggested that the stock market is the best place for child trust fund cash because when it comes to long-term investment, shares "almost always produce a better return than savings accounts".

• The official website is childtrustfund.gov.uk and there is also a helpline, on 0845-302-1470.