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 @TraceyLacey

Thank you for your question. Firstly, I would consider quite important to understand the difference between a fixed term deposit where you can obtain an specific return and an investment portfolio with a variable return. Fixed term deposits are aim for short term needs and not the best instruments during high levels of inflation. Investment portfolios are considered for a longer time horizon with a minimum recommended of 5 years. One of the considerations at the time to make an investment decision is the capacity of loss which is measure, mainly, by two variables: total assets and time horizon. The more additional assets and the more time we have, the more risk we can assume with the premise that in the long term short term volatility can be erased as we will have more time to recover.

Hi @Mezema78

Thank you for your question. There are a lot of good different ways which you could motivate your children to do chores for money. One method I used is placing a value for all the different chores they could do depending on difficulty etc, for example, taking the bins out 50p but hoovering £1. When they do the chore you can tally it and at the end of the week they can receive a total depending on what and how many chores they completed that week.

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. A Junior ISA doesn't necessarily have a different set rate to a standard account, it is simply that any and all returns are tax free. With the JISA any funds contributed into this will be locked in until your child turns 18, therefore as money builds it up the tax protection will become more meaningful. On top of this, once your child turns 18 the account becomes an ISA - so your child's money is already tax free and sheltered from whatever growth it get in its time in the account. So it could be worth considering some JISA options on top of a savings account.

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 @CaughtUpAgain

Thank you for your question. If this is a question that is relevant to you right now, then I am sorry to hear. It is a little bit outside of my full knowledge area but I will try and be as helpful as possible. Speaking from the perspective of a JISA, a JISA for a child is generally set up by the adult, so whoever's account it is set up on is likely to be the main trustee for this. having said this, the money belongs to the child and the adult is unable to access it, so it is still safe for its purpose.

Speaking from the experience of the products we have at Moneyfarm, most JISAs will allow for third party contributions, so adults other than the direct account holder should still be able to contribute (as opposed to transferring to the account holder hoping they will then put the money in). Because the money in a JISA belongs to the child, I believe there aren't that many legal precedence in how to handle this, however the best solution is to find a solution between the 2 parties.

It is important to note that you can have only one type of JISA per child (cash and stocks and shares), so it is not possible for the other parent to simply set up a new one of the same type and run it separately. So it is important to come to some sort of agreement.

Hi @Chevyimpala67

Thank you for your question. It usually makes sense to make as much return on your savings as you can, providing you don't mind dealing with the hassle of switching. The issue at the moment is that interest rates are still very low by historic standards and the rate of inflation is much higher, so by holding cash savings you will be losing out on purchasing power over time. A managed stocks and shares JISA can give the money a better opportunity to grow than a low interest savings account - but it is all dependant on your risk preference and time horizon. We would classify 4-5 years as a medium term horizon and historically our studies have shown that, when investing, the longer you are able to invest for, the lower the probability of losing money over that horizon and the longer you have to compound your returns.

Hi @welshmardymum

As you're currently investing outside of an ISA wrapper, any interest or growth you receive may be liable for tax. There is an option for you to move this money into a Junior ISA (JISA), which would ensure any growth is tax free, however, these products are typically less accessible. With a JISA, money must stay invested until your child turns 18. Therefore, if access is needed before this, it may not be the best option.

Another thing to consider is that due to high inflation and low rates of interest, most cash accounts are yielding a negative rate of return. Therefore, it could even be an option to look at a General Investment Account, or invest for your children within your own ISA allowance. This means your child's money will be invested into a diversified portfolio of assets but will still be accessible. Although, one thing to consider is that bonds, along with equities can increase the risk of your investment over the short term.

Hi @rupert23

You can transfer a Child Trust Fund (CTF) into a Junior ISA (JISA) at any point before the child turns 18.

JISAs generally offer more choice and better value, whether it’s higher interest rates on their cash accounts or lower annual fund management charges. This was because once CTFs were discontinued, providers tended to put more effort into attracting customers into their JISA product.

Hi @MadamElderfield

Thank you for the question. There are a few factors that can vary from person to person in terms of circumstance, but as a broad rule, the sooner that you open and account the better. The sooner you can start, the more powerful the compounding effects are. Also with a longer time horizon, it will allow you to take more risk in the savings as well. History shows that the longer that your investment time horizon the higher the probability of success. This is why Wealth managers would advise a higher level of risk for long time periods, although it is important to assess other factors such as your appetite for risk first - to make sure any investments are suitable. Conversely cash savings will also benefit from compounding, however it is very likely that inflation will compound at a much faster rate. Having said that, if your risk appetite is low - your savings should reflect this.

Unfortunately you cannot start when you are pregnant, as the child's details have to be registered on the account, however you can start as soon as the child is born. Also anyone (relatives etc) can pay into the JISA from that point as well.

Hi @Lovelydovey

Thank you for your question. The answer will greatly depend on your personal circumstances. For instance, if you're disappointed with the returns delivered by your child’s account, or think you're paying too much in fees, transferring your CTF to a Junior ISA could be a wise thing to do.

Generally speaking, CTFs have become less attractive – mainly due to providers no longer being able to onboard new customers to open new accounts. For example, the interest rates offered by Cash CTFs tend to be lower than a Junior Cash ISAs. Also, with Shares or Stakeholder CTFs, the range of investment choices available may be more limited, meaning your child could be missing out on potential opportunities. With a Junior Stocks and Shares ISA, their money would typically be invested in a wider array of investments. Again, the choice to transfer or not is up to you but please don't hesitate to click here to book an appointment with us if you would like any further information.

Thanks for the response - really useful and we will be putting into action. thankyou