Your questions answered: Junior ISAs & children’s bank accounts

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We're no longer taking questions on this Q&A. Chris has answered some of your questions below!

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With so many options available, it can be difficult to know the best way to start saving for our children's future so we've invited Chris Rudden from Moneyfarm to answer your questions. Whether you’d like to know how to start saving for your child’s future, what type of account is right for your family or how you can inspire your children to save money, post your question on the thread below.

• Everyone who shares a question below by Wednesday 22nd June will be eligible for the prize draw where one lucky Mumsnet user will win a £200 voucher for a store of their choice.
• Chris will be back online in a couple of weeks to answer a selection of your questions on the thread below.

About Chris Rudden, Head of Investment Consultants UK “Chris is passionate about blending technology and human expertise to help people make better investment decisions to secure their financial future. Chris has risen through the ranks at Moneyfarm and is the head of the client-facing department for the UK.”

Here’s what Moneyfarm have to say:
“Finding the right path for your investment journey has been at the core of our strategy since we began a decade ago. And while the markets are constantly changing, there’s a constant – our expert team, equipped with quantitative and qualitative techniques (and some tools) remain committed to helping you make better investment decisions.”

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Hi @hannahbjm

Thank you for your question. Absolutely, you have worked hard to put this money away for your child, you should make sure that it is given the best opportunity to grow. If you have a long enough time frame a managed stocks and shares JISA can give the money a better opportunity to grow than a low % savings account - but it is all dependant on your risk preference. The only caveat is that you can only have 1 JISA per child (of each type to be fair - ie 1 cash and 1 stocks and shares) so this means you can't split pots too much. So it is best to be sure before switching the whole thing

The winner of the prize draw is @Amber17 - congratulations!

Thanks for all your questions!

Moneyfarm have shared an exclusive offer with us below in case anyone is interested:
Get £150 cashback when you add £3,000 to a Moneyfarm JISA
Capital at risk. JISA and T&C rules apply.

Hi @AGC21

Generally speaking, the earlier the better. Time is your best friend when you are saving or investing. Particularly for a stocks and shares JISA, where more time means you can ride up the general ups and downs of markets and give yourself a much better chance of achieving inflation beating returns. As a general rule of thumb, which is always dependant on a client's attitude to risk, is that for short term savings it is better to use cash, however a long time frame gives you the best chance of success in a well diversified investment portfolio. Having said this, it is always best to speak to someone first and understand the risks and investments themselves. There are many places that will handle the investments on your behalf should this be something that would make you feel more comfortable.

Otherwise you can opt to go for cash savings and you will still benefit from the effects of compounding through time. However a long time frame will also allow inflation to compound.
However the sooner the better and will allow you to build up a pot over time, if you want to drip feed in.

In terms of amount it is hard to say without knowing your personal circumstances. Obviously the more that you put in, the better the pot that your child will have at the age of 18. However you cannot get money back out of a JISA, so you need to be sure that you can afford to put it away before doing so.

Hi @Astralis
Thank you for your question. If your main goal is to give your child a head start for their first house, university tuition or simply help them follow their dreams, the JISA (Junior Investment Saving Account) is definitely the most tax-efficient way to support them. You, and other members of the family and even friends, can make regular contributions or a single one up to the annual allowance of £9,000 until your child turns 18 years old. During that time the child can not dispose any money.

Hi @chris8888

With Inflation in the UK at a forty year high sitting just above 9% and the current bank rate sitting at 1.25%, cash savings, whether it be in the form of an ISA or a saving account, is seen to be high risk. This is because with inflation where it is, even a high interest savings account will be be generating a negative real rate of return.

Alongside this, there are a few substantial differences between investing in and outside of an ISA Wrapper. ISAs are extremely tax efficient products, for a Junior ISA (JISA) you can invest up to £9,000 per tax year, which will be tax free on any interest generated within the ISA. Therefore, we typically tend to see clients utilise their JISA allowance first and investments outside of the JISA after the allowance has been used.

Hi @Kelloges030410

Thank you for your question. Absolutely, you have worked hard to put this money away for your child, you should make sure that it is given the best opportunity to grow. If you have a long enough time frame a managed stocks and shares JISA can give the money a better opportunity to grow than a low % savings account - but it is all dependant on your risk preference. The only caveat is that you can only have 1 JISA per child (of each type to be fair - ie 1 cash and 1 stocks and shares) so this means you can't split pots too much. So it is best to be sure before switching the whole thing.

Hi @Kelloges030410

Thank you for your question. The first step would probably be for you to understand some of the basic concepts of investing into stocks and shares which is much easier and accessible now. In this new age of digital investing these services are much cheaper than the traditional financial advice and you can often chat to someone for free. This can be done with many places not just Moneyfarm, but if you would like to just have a chat with someone please feel free to book a free appointment with us here.

I think a JISA is generally a very good way to introduce your kids to the idea of making their savings work better for them. You are still in control, however you can really show in detail what is going on and explain it to your children. Particularly those with an online account, generally speaking the interface is made to make it all very readable and easy to absorb the information. This will then be combined with content, videos and charts to really help to educate. On top of this, if you go with a Stocks and Shares JISA, then you can really teach your children about the ups and downs of markets from a young age, with them unable to make the traditional mistakes that investors make - and so putting them on the front foot for investing and saving for the long term when they start adult life.

Hi @nannynick

Thank you for your question. There are different types of investment providers, some passive and some active. Some platforms where you simply want to buy some ETFs that you have chosen, can certainly be cheaper. Our current offering is 'actively managed' where we have a team of portfolio managers who invest on your behalf. This is still very reasonably priced, particularly compared to where the industry used to be for this kind of service. However we are also soon offering simple passive portfolios, which will be much closer to the price point you are mentioning. If you would like to find out more please book an appointment with our consultants and they would be more than happy to provide more details for you.

Hi @BristolMum96

Premium bonds are rather unique within savings accounts since the return you achieve will vary month to month. Some months you might do better than a standard fixed rate account, other months you might received nothing and this adds an element of risk. On average though, you expect to receive the quoted interest rate, which currently stands at 1.4% a year.

You should compare that average rate to what you would be able to get in a standard savings account or cash ISA. If the rate outside of premium bonds is higher, you might consider going down this route due to the certainty of the interest rate you will earn.

Another thing to consider is that winnings on premium bonds are tax free, whereas interest earned in a non-ISA savings account could be taxable if you exceed your yearly tax-free allowances.

Hi @LidlCinnamonBun

Thank you for your question. Actually, you still have the option open a Help to Save scheme until September 2023 as long as you meet the criteria and to be agree with the savings limitations. You could also consider other tax-efficient schemes as the ISA (Investment Saving Account ), where you could enjoy an annual allowance up to £20,000 per adult and you have no tax to pay on any dividends, growth, interest or income you get from the investments. At the same time, in the case you are considering a saving plan for your child there is also the option for the JISA (Junior Investment Saving Account), with an annual allowance up to £9,000 where you can decide the most suitable risk exposure. Please consider that if you choose a JISA you will invest on behalf of your child until they turns 18 years old when they are the official owners of the accumulated amount saved.

Hi @Sleepybumble

Thank you for your question. How much you should save for your child is ultimately up to you and your personal circumstances. Be aware that money put into a JISA cannot be retrieved, so make sure you can put it away first.

However, time is the best friend of any saver. When we look at the power and the effect of compounding the effect is amplified more and more the longer that you can go. So as a result, the sooner that you can put the money in the better as this will allow this compounding to work it's full magic. So with that logic you would ideally want to put as much savings as your circumstances allow you to so that the money has the best chance to become a nice nestegg when your child turns 18 if you are using a JISA for example.

Hi @DoNutSweatTheSmallStuff

It is true that both premium bonds and ISAs are tax free vehicles in that sense. Premium bonds are considered incredibly safe, they are a government institution looking after the money. However as a result the interest rate on premium bonds is 0, simply entrance into a raffle each month - as you eluded to. This sounds exciting, however the probability of winning, at least a large amount, is really quite low. So whilst there are some winners, most people end up with an effective rate of return which is often lower than holding cash. So whilst they are incredibly safe, the return traditionally tends to match that.

In a period of high inflation - or any inflation really - it could be worth looking further afield. If you look at some of the other answers you will see some descriptions about cash vs stocks and shares, I would place premium bonds as even safer than cash.

Hi @Ishka

Thank you for your question. Lots of you have asked this question, so I hope this answer will address the points you have raised. When the child turns 18, the JISA is then transformed into an ISA in the name of your child and they will have full control. There are some types of trusts that have a different age at which they mature, but they are harder to come by and might have a higher fee structure on them. The alternative is that to save some money in separate pot yourself, then you can stagger the gifting of that money as your child grows up.

Hi @colleenw

The company or product offering the best interest rate varies through time, but you can always use price comparison sites to find who is paying the highest rate at any particular time.

If you have a long enough time frame a managed stocks and shares JISA can give the money a better opportunity to grow than a low % savings account - but it is all dependant on your risk preference. The only caveat is that you can only have 1 JISA per child (of each type- ie 1 cash and 1 stocks and shares) so this means you can't split pots too much.

Hi @sharond101

Thank you for your question. If by best you are referring to best returns then stocks and shares has long been considered the source of the greatest returns for investors, outperforming other types of financial securities over a longer period of time.

If you have a long enough time frame a managed stocks and shares JISA can give the money a better opportunity to grow than a low % savings account - but it is all dependant on your risk preference. Although historically the long term returns of diversified portfolios of stocks and bonds, there is always a risk of have less at the end of your investment horizon than you did at the start. However, our studies show that generally the longer you invest for, the lower the possibility of loss.

Hi @Magik01

If you're investing on behalf or your sons, time horizon can play an important part of your financial planning, as certain assets perform better over specific periods of time. Typically, Bonds and Stocks and Shares outperform cash over the long term (7 Years +) and can promote growth. Therefore, if your child is 11 or less a Stocks and Shares JISA could be a better option. If your child is over 11, then a lower risk stocks and shares JISA could still be utilised over a cash account, as the portfolio can be diversified between a mix of assets to mitigate risk and potentially generate a higher rate of interest.

Holding cash at the moment is seen to be a fairly risky way to save, due to high inflation and low interest rates ensuring a negative rate of interest which compounds over time.

Alongside the above, ISAs are extremely tax efficient products, for a Junior ISA (JISA) you can invest up to £9,000 per tax year, which will be tax free on any interest generated within the ISA. Therefore, we typically tend to see clients utilise their JISA allowance first and investments outside of the JISA after.

Hi @Asuwere

S&S JISA certainly are a way to give you a higher return and give you a good chance of beating inflation over a longer period of time. However they are not without risk and there is also the risk that you come out with less than you put in. The key, as you mentioned, is make sure you are in a portfolio that suits your risk appetite and your time frame. If you have a long time frame and are comfortable taking on a little risk then it is definitely worth considering a Stocks and shares JISA. I would highly recommend speaking to one of the consultants at Moneyfarm - through this link here, they will be more than happy to talk you through what different options are out there,

Hi @jellybeanpopper

Thank you for your question. Firstly, it is quite important to understand that even when we can consider a Trust and a stocks and shares ISAs tax-efficient ways to save, in a Trust it is important to determine the final beneficiaries as the assets are out the estate of the settlor different to the ISA, where the assets are part of the estate of the individual. Before taking an investment decision it is recommended to assess your current situation as well as our aims and goals taking into account the different tax and cost benefits from all the options we could have as UK residents.

Hi @AngelwingsPetlamb

Thank you for your question. Premium bonds are considered incredibly safe, they are a government institution looking after the money. However as a result the return on premium is 0. There is is no interest rate attached, simply entrance into a raffle each month. This sounds exciting, however the probability of winning, at least a large amount, is really quite low. So whilst there are some winners, most people end up with an effective rate of return which is often lower than holding cash. So whilst they are incredibly safe, the return traditionally tends to match that.

In a period of high inflation - or any inflation really - it could be worth looking further afield. If you look at some of the other answers you will see some descriptions about cash vs stocks and shares, we would place premium bonds as even safer than cash.

@Sam1904

With a Junior ISA (JISA), the investment is in the child's name. Therefore, any investment you make into the portfolio will be automatically released to the client when they become an adult at 18. The child typically had two options from here, they can keep their money invested and it will transfer from a Junior to an adult ISA. or the child can choose to start drawing down on the amount they have received. This decision is ultimately down to the child.

There are other ways to save on behalf of your child, without them inheriting the plan at 18. This could include any account which is held under your name, rather than your childs. Including General Investment Accounts, Savings Accounts, or even a standard ISA. However, please be aware if you are saving for your child under your own ISA, this will be included in your £20,000 allowance.

Hi @ButterMyMuffin

Thank you for the question. There are quite a few answers to other questions that cover the investing vs cash, so please have a look through those and I will cover the very good point about encouraging children. I think a JISA is generally a very good way to manage this. You are still in control, however you can really show in detail what is going on and explain it to your children. Particularly those with an online account, generally speaking the interface is made to make it all very readable. This will then be combined with content, videos and charts to really help to educate. On top of this, if you go with a Stocks and Shares JISA, then you can really teach your children about the ups and downs of markets from a young age, with them unable to make the traditional mistakes that investors make - and so putting them on the front foot for investing and saving for the long term when they start adult life.

Hi @Amber17

With Junior ISAs (JISAs), the funds will become the property of your child automatically once they turn 18 and will be transferred into an account in their name.

If you want to have more flexibility to decide what to do with their savings once they come of age, you could consider using a regular ISA in your name. This way you preserve the tax efficiency, but ultimately the assets belong to you and you have full control over them. Once your child turns 18, you could gift them the money or hold it until you feel they will use it wisely.

The only downside with this approach is a lower amount that you can save or invest in a tax free manner. Using a JISA and an ISA you have potentially £29,000 to put into a tax-free wrapper. However, if you only opt to use the ISA, you reduce that to £20,000. Whether this is relevant to you will depend on how much you are able to put away.

Hi @nobabiesyet

Thank you for your question. How regularly should you save for your child is ultimately up to you and your personal circumstances. However, time is the best friend of any saver. When we look at the power and the effect of compounding the effect is amplified more and more the longer that you can go. So as a result, the sooner that you can put the money in the better as this will allow this compounding to work it's full magic. So with that logic you would ideally want to put savings in as regularly as your circumstances allow you to so that the money has the best chance to become a nice nestegg when your child turns 18 if you are using a JISA for example. But be aware that money put into a JISA cannot be retrieved, so make sure you can put it away first.

With savings accounts you receive a set % return which means that the more you have saved then the better the return is. If you have a long enough time frame a managed stocks and shares JISA can give the money a better opportunity to grow than a low % savings account - but it is all dependant on your risk preference.

Hi @LaVieEstBelle159

Firstly, let me clarify the rules around JISAs. You can only have one of each type of JISA per child - so, one stocks and shares JISA and one cash JISA.

If you have a long enough time frame a managed stocks and shares JISA can give the money a better opportunity to grow than a low % savings account - but it is all dependant on your risk preference. Although historically the long term returns of diversified portfolios of stocks and bonds, there is always a risk of have less at the end of your investment horizon than you did at the start. However, our studies show that generally the longer you invest for, the lower the possibility of loss.

We do not include any crypto in our portfolios due to its extreme volatility, large downturns (you only have to look at the market at the moment) and the difficulty in determining the appropriate value for a single token.