Published: 09/02/2010

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Every day hundreds of proud parents throughout the UK welcome their new bundle of joy into the world. It's a great world, but it can be a real challenge financially sometimes, especially when you're ready to leave home and learn to stand on your own two feet.

So whilst those new mothers and fathers have a whole host of things to occupy their minds as they come to terms with their new family life, the matter of saving for their baby's future shouldn't be forgotten.

Although your new bundle of joy's 18th birthday may seem an eternity away, it's never too soon to start saving for their future and giving them a real head start when they come to buy their first car or put down a deposit on a home of their own.

The government are keen for us to become a nation of savers and a few years ago introduced the Child Trust Fund to encourage the savings habit from a very early age. Since their introduction in 2005 more than four million Child Trust Fund accounts have been opened.

The Child Trust Fund is basically a long term savings and investment account that allows you to deposit £1200 each year into an account, free from tax. As well as the advantage of the tax free status of the account, the government will set you on your way with a £250 voucher to start each child's account and give you a further £250 when they reach their seventh birthday.

There are three types of account to choose from, a cash based savings account, a stocks and shares based account called a stakeholder Child Trust Fund or a stocks and shares based ISA allowing you in conjunction with a financial adviser to decide exactly in which shares or funds you want to invest.

The Government has made rules for stakeholder accounts to be a lower risk product where the investments must be across a range of companies rather than investing in just one (so not all your eggs are in one basket) and the money begins to be moved into safer investments and assets when the child reaches 13 years of age.

The stakeholder account also has a maximum annual charge limited to no more than 1.5% and all stakeholder providers must accept a minimum contribution of £10 into a stakeholder account (though they can accept less if they wish). With a non stakeholder CTF the charges can be more than 1.5% per year and minimum payment into the fund may be quite a bit higher.

Just to give you an idea of the sums involved, if you were to save the maximum £100 each month at an interest rate of 3%, you would build an impressive nest egg of £28,977 in eighteen years.

Just imagine how you would have felt if your parents had put aside that sort of money for you and what a difference it would have made to you when you were starting out in your adult life.

So whilst cash savings accounts are quite straightforward, if you are thinking of some stocks and shares based investments, it's definitely worth seeking some expert advice to ensure you understand the charges and risks associated with this sort of investment strategy.