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As parents, we want to make sure our children have the best start in life. And, if you can afford to put away some money each month, it can be a great head start with their finances when they’re older. This might mean them having the money to go to university, travel the world, or save for their own house.
But what is the best way to help put your child on the path for a solid financial start in life? Do you put money into a savings account — or look at shares and investments? Junior ISAs are one way of building up money for your child’s future, as you can save and invest on behalf of your child until they turn 18. It can also help teach them about managing their own money when they’re older.
As with any decision concerning finances though, it can be very overwhelming trying to work out which option is the best for you and your family. That’s why we’ve done a lot of the research for you.
With the help of money experts Wealthify (we’ve answered some of the most common questions about Junior ISAs to help you decide if this is the right investment for your child’s future. We’ve also included advice from our Mumsnet users, who’ve been busy squirrelling away money to give their child a good head start in life.
How does a Junior ISA work?
“I put in £65 pm to a JISA for my kids over 5 years, plus £1000 at the start. I actually capped what I was putting in then as I don't want them to have too much at 18. So, £50 pm is plenty.” Starface
Junior Individual Savings Accounts (JISAs) are long-term, tax-free saving and investment accounts for children. There is a limit on how much you can save or invest in a year though: in 2022-23, you can contribute up to £9,000 in a Junior ISA. This allowance can be put into one type of ISA, or split across both types.
As the account is in their name, only your child has access to the account when they turn 18, meaning you can’t withdraw money from it. From 16, they can start managing the account themselves but can’t access the money. When they turn 18, the Junior ISA then becomes an adult ISA — and only they can withdraw money from it.
A child cannot have a Junior ISA if they already have a Child Trust Fund (CTF), but you can transfer the balance. If you’re not sure whether your child has a CTF, it’s worth checking, as according to HMRC 55% go unclaimed with an average of £2,100 in each account. Even if you didn’t open an account on their behalf, your child could still have one thanks to 29% having been opened by HMRC. You can check whether your child has one at: Child Trust Fund: Find a Child Trust Fund - GOV.UK (www.gov.uk).
Is it worth opening a Junior ISA?
There are lots of reasons why you might want to choose a Junior ISA for your child. For a start, any money you save grows tax-free, so it doesn’t affect your own tax allowance — and they get everything you saved, plus some more from investments and interest.
Some parents choose to set up monthly payments into the account so it grows over time, with anyone – including grandparents and friends – able to contribute to the account (as long as the amount paid in doesn’t go over the ISA allowance limit). As the child can only access the money when they turn 18, it can be great for parents who want to build a secure nest egg for them to have when they’re older.
However, if you want to be able to take money out in an emergency – or control what your child spends it on – then this may not be the savings account for you.
What are the different types of ISAs?
“We currently save £200 a month for both our children. We put £150 into premium bonds and £50 into a junior S&S ISA. I didn't want them to have access to it all automatically when they were older and I also wanted to be able to access the money myself if we really had to (only in a real emergency) which is why we chose premium bonds. They do quite often win £25. They will have access to the ISA when they're older which is why we currently put a smaller amount into it.” confusedlots
There are two different types of Junior ISAs to choose from for your children: a Junior Cash ISA or a Junior Stocks and Shares ISA.
Junior Cash ISA
This is similar to a bank or building society savings account, in that your child will get everything you’ve saved back (and a bit more from interest). Unlike a traditional savings account though, neither you nor your child will pay any tax on the savings, with the money locked away until your child turns 18.
Junior Stocks and Shares ISA
The money paid into the account can be used to buy investments and, like with the Junior Cash ISA, you don’t pay any tax on any capital growth, interest or dividends.
You can put your child’s savings into investments like funds, property, shares and bonds. The benefit to this is there being more potential for growth over time; however, it is riskier than a Junior Cash ISA, as the value of the investments can go both up and down.
If your child is over 13, remember that its recommended investments are typically held for a minimum of five years, so you may want to opt for a Junior Cash ISA instead.
It’s worth noting that you can open both of these accounts for your child and pay into both of them in the same tax year, as long as their combined savings are not more than the annual tax limit.
Did you know? Wealthify’s JISA has been voted Best Junior ISA for three years in a row at the Personal Finance Awards.
Are Junior ISAs better than a savings account?
“Stocks and shares Junior ISA. An enlightening thread some time ago was asking about forgotten child trust funds… years ago newborns were given money to save or invest. The difference in amount between those who had invested that amount into stocks and shares and those who just left it sat in the bank were: stark. Invest. Index funds. And now is a great time to buy.” ICanSmellSummerComing
This all depends on the kind of savings you want for your child. If you want to put some money away and gain a little bit of interest – but have the option to withdraw money if you need to – a regular savings account may be better for you.
However, if you’re looking to the future when it comes to saving, Junior ISAs are long-term savings and investments that are essentially locked away until your child turns 18, so you know any money you put away will only be used by your child when they’re older. This removes the temptation to dip into it from time to time and, because it’s in their name rather than yours, your child’s savings can grow over time without having to worry about losing any of it to tax. There’s obviously a cap on how much you can save per year though.
“I have cash isa for them and stocks and shares isa… Then in the two isas they have small inheritance. Again it's kept in two so they don't splurge it all in one go. (hopefully) The cash isa earned about £150 interest. The stock and shares isa... Several thousand pounds.” Newyearoldyou
There is some risk, depending on which type of JISA you opt for. With a Junior Cash ISA you won’t lose any money as you’ll get back what you saved plus interest. The only thing you need to consider is the impact of low interest rates and inflation, which can affect how much the savings are worth.
With the Junior Stocks and Savings ISA, you are investing the savings you put in, so there is an element of risk — meaning you could lose money along the way. However, as you’re saving over a long period of time, there’s also a chance of bigger returns on your money.
What the experts say
The experts at Wealthify share their tips and advice for giving your child a head start with their finances.
Why should you open a savings ISA for your kids?
To help your child meet their future goals – this could be using their savings to pay for university, a car or a deposit for their first home. They may also want to use it to pay for their wedding, going travelling, etc.
To give your money the chance to grow – when you put money in a savings account or a Cash Junior ISA, you earn interest, with your money typically growing at the rate that your bank is paying you. But every time the interest rate you earn goes below the rate of inflation, the value of your child’s savings could fall. In other words, your child’s money could be growing at a slower pace than everything else (such as house prices and the cost of everyday goods and services). If you want to give your child’s savings a chance to grow, consider investing in the stock market, especially if your child is still young. Over the long-term, it's been proven that investing outperforms cash - looking at a 10 year window of returns from 2002-2012, investments outperformed cash 100% of the time*.
To help teach your little ones about money – children and young people who have had financial lessons at schools are more likely to save up regularly, have a bank account, and be confident managing their money. A lack of financial literacy makes it more difficult for young adults to take control of their finances, and this could have an impact on their mental health.
As an alternative to physical gifts – invite friends and family to contribute for Christmas and birthdays. Three quarters of parents (78%) say that some of the presents given to their children at Christmas are unwanted. This equates to £264.80 per child and, if that same amount was invested every year in a Junior Stocks & Shares ISA from birth to 18 years, it could be worth £6,559 at maturity.
It’s flexible - you can open a Junior ISA with as little as £1 and pay in as much or as little as you’d like — whenever you like. It’s really up to you.
*Source: Bloomberg, 10 year rolling period, from 31/10/2002-31/10/2012; FTSE 100 & BoE bank rate
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