THE battle for £500 million of Child Trust Fund (CTF) money erupted into name-calling and customer confusion yesterday after F&C Asset Management branded ordinary cash CTFs as “pointless”.

The fund manager, which has been aggressively plugging its share-based CTFs, said that cash CTFs, which the majority of parents receiving vouchers are expected to opt for over the next few months, were “no place to park money for 18 years”.

It also accused the Government — for whom the CTF is a flagship scheme going into the next general election — of making a mistake in not ensuring that all CTFs had an element of stock market exposure.

“Perhaps the notion of every newborn child becoming a stock market investor was a step too far for the comrades,” said Jason Hollands, communications director of F&C.

But the attack drew a withering response from the building societies, the main players offering cash CTFs. The Building Societies Association said F&C was being “absolutely ridiculous”.

A spokeswoman for the association said that it was right to give a cash option to parents who had been burnt by the stock market or were risk averse. Some parents might not want to invest in shares for ethical reasons, she added.

Britannia Building Society accused F&C of thinking only of wealthy customers and not of low-income households for whom cash products might be more suitable.

Two million UK households have started receiving CTF vouchers worth between £250 and £277 for each child born since September 1, 2002. Parents can open accounts immediately but the money will not earn returns before April.

About 75 CTF providers are battling for a share of about £500 million this year and £200 million a year in future.

The government scheme — dismissed by the Conservatives as a pre-election bribe — is designed to give each child a nest egg on their 18th birthday.

Many parents are undecided or confused about their options. A recent survey showed that 42 per cent planned to opt for cash accounts, 9 per cent for a share market-linked product and 20 per cent for the hybrid “stakeholder” option, while 29 per cent were undecided.

“Over long periods of time the real value of cash is slowly eroded by inflation,” Mr Hollands said. “So whilst it provides security during periods of volatile markets or as the investment reaches maturity, it is no place to park money for 18 years.”

Over the past 18 years, £250 in a cash deposit account would have grown to £652, while the same amount invested in the FTSE 100 would have grown to £1,427. After allowing for inflation, both returns would have been much lower.

Although future equity returns were likely to be lower than in the past two decades, the stock market would still outperform cash, F&C said.

Nationwide Building Society, which is expected to be one of the biggest providers of cash CTFs, said: “Many people have had their fingers burnt in the stock market and are wary of investing for their children in equities.”

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