A quarter of Child Trust Funds might have lapsed into so-called 'zombie' accounts, according to new figures by investment company Scottish Friendly.
Up to 1.5 million of the 6.3 million Child Trust Fund opened between 2002 and 2011 were never topped up, Scottish Friendly estimates.
This indicates parents may have forgotten about this money and their kids' savings could be languishing in accounts that offer poor returns and charge high fees.
The Labour overnment introduced Child Trust Funds (CTFs) in 2002.
The scheme gave all new parents a £250 cash voucher (£500 if they were on a low income) and a further £250/£500 when their child turned seven, to invest in a tax-free cash or investment Child Trust Fund product.
If you didn't open one within a certain time limit, the government put it into an account for you.
Families could build on this savings foundation, and still can. Currently parents/grandparents/friends can add up to £4,128 a year tax free into these accounts.
The scheme was scrapped in 2011 and replaced with Junior Isas, but by then over six million CTF accounts had been opened by parents or the government.
Since the change, financial companies slowly stopped offering good deals with less competition, less innovation and lower interest rates compared to the new Junior Isa ranges.
One of the bizarre problems that may have contributed to the high number of forgotten ‘zombie’ CTFs is that parents were not allowed to transfer them into a Junior Isa until April 2015 – leaving the money in limbo.
However, the rules finally changed in April 2015, so parents can now move the money somewhere better.
How to track down a lost Child Trust Fund
The first step is to figure out if your child is likely to have a ‘zombie’ Child Trust Fund.
You should have received a Child Trust Fund voucher if your child was born between September 1, 2002 and January 2, 2011 and you were eligible to get Child Benefit.
If you meet these criteria you can track down your lost Child Trust Fund using the HMRC website.
To fill out the form you will need to confirm you have parental responsibility for the child, which means you will need to be their parent, step parent or legal guardian.
HMRC will write to you within 15 days to let you know where your Child Trust Fund is held.
How to move a Child Trust Fund to a Junior Isa
Since 6 April 2015 money held in a Child Trust Fund can be transferred to a Stocks & Shares or Cash Junior Isa.
CTFs and Junior Isas are similar in that you can put away up to £4,128 a year tax-free and choose between cash and investment versions of the accounts. Both also keep the cash locked away until your child turns 18.
To compare Stocks & Shares Junior Isas head over to an investment comparison centre. You should again check if providers will accept Child Trust Fund transfers and whether you have to pay a fee.
As part of the application for a Cash or Stocks & Shares Junior Isa you'll need to fill out a transfer form with the details of your CTF, but your provider will deal with moving the funds over for you.