As parents, most of what we do has our children at the centre of it. We worry about them, we want to protect them and we want the best for them for the future.
Unsurprisingly, many parents want to invest money for their children to access when they become adults. Starting early can mean that by the time they’re an adult, your child could have funds for for university fees, maybe a car or even a house deposit.
It might seem impossible, but take a look at a compound interest calculator to see how much interest your cash could generate by the time your child turns 18; it’s probably more than you thought isn’t it?
The most popular method of saving for children is through Junior ISAs.
You can get Junior cash ISAs or Junior stocks and shares ISAs.
A junior cash ISA (or JISA) is just like a normal long-term savings account, except that you don’t pay tax on the interest. Any parent or legal guardian can start an Junior ISA for their child and this can be done easily online with as little as £1 depending on the bank or savings institution you choose. Family and friends can add money as well either electronically or in person if you choose to invest with a high street bank.
With a junior stocks & shares ISA, the money is invested in stocks and shares, bonds etc. Any gains made are reinvested which means your child’s money could grow more quickly. Compared to a junior cash ISA which accumulates interest more slowly, this can be an attractive option because rates paid on cash savings at the moment are low. However it is vital to know that, investing in stocks and shares means there’s a higher level of risk because investments can go down in value as well as up. A financial advisor can tell you which kind of JISA is right for you.
Other things to note about JISAs
- The annual limit you can invest in a JISA is £9,000 which is less than in an adult ISA. You can’t pay in more than this, and you can’t open a second cash JISA although each child can have one junior cash ISA and one junior stocks and shares ISA during their childhood.
- Parents or guardians with parental responsibility can open a junior ISA and manage the account, but the money belongs to the child and can’t be taken out and used by the parent, even in an emergency. Once open, anyone can contribute, so it’s perfect for family and friends to gift money for birthdays etc, although the child obviously can’t access it until they turn 18.
- As the money is your child’s, when they’re able to get their hands on it, it’s entirely up to them how they spend it. So you might have big dreams about them going to uni, but if they decide they want to spend it on a holiday then there isn’t a lot you can do about it.
- The child can take control of the account when they turn 16 – this can be done online – but, as a junior ISA is a long-term option, they cannot withdraw the money until they reach the age of 18. If you think you might need the money sooner, a junior current account might be a better option.
- If your child already has a Child Trust Fund (CTF), you will need to transfer it.
Starting sooner can see you child’s investment grow. Why not see how much you could save?
