Inflation Risk to Children’s Savings
The Bank of England’s Monetary Policy Committee met at the beginning of August and a new inflation forecast is expected to be released that will show prices rising by close to 4% this year, far above its target of 2%.
This means the costs of living is increasing at a rate that is far greater than the interest rate being paid on most children’s savings accounts. In other words, money that is being held in cash savings accounts is not growing in real spending terms.
Within a busy family life, too often children’s cash savings are given a lower priority than other more pressing financial concerns. Accounts opened when a child is born can be left for 18 years untouched, sometimes without the interest rate ever having been checked. A child might not need this money during their infancy, but as a young adult every pound starts becoming more important.
Inflation can be diﬃcult to understand, but imagine you had enough saved to pay for your child’s university fees when they were born. If the cost of living or inflation is at a rate higher than the interest rate being paid on your savings account, then when your child turns 18, your savings pot won’t have risen enough. University fees will have gone up, but the interest paid on the savings account will not have gone up by the same amount, leaving you with a deficit.
This is why inflation is a hot topic of conversation right now, and it has never been a more important time to consider investments over cash savings accounts for a child.
The solutions for children’s accounts are not straight forward. You can easily open a child’s cash-based savings account and compare the interest rates, but when it comes to investing, there are few packaged solution choices.
Junior ISAs are a good way to both save and invest for a child. When it comes to the investing element of the ISA, people often get put oﬀ by having to select the right investments. Feeling overwhelmed by choice, and being in fear of making a mistake with the wrong level of risk, they then don’t proceed. Whilst they know they should be investing rather than saving for their child, the lack of any easy investment solution means the project can grind to a halt.
Investing for a child is no diﬀerent to investing as an adult. If you are already a client of Furnley House, then you will have already gone through an extensive fact find process to establish your attitude towards taking investment risk, and you will have a relationship with your financial adviser. If you would like to invest for a child, then we can help you make sure the right investment funds are selected and open Junior ISA accounts.
How do Junior ISAs work?
Junior Individual Savings Accounts (ISAs) are long-term, tax-free savings accounts for children. In the 2021 2022 tax year the savings limit for Junior ISAs is £9,000.
To be eligible for a Junior ISA, a child must be under the age of 18 and living in the UK.
You cannot have a Junior ISA as well as a Child Trust Fund. If you want to open a Junior ISA ask the provider to transfer the trust fund into it. However, if you have an existing Child Trust Fund your adviser can review the investment choice and you can continue to invest into it.
There are 2 types of Junior ISA: a cash Junior ISA and a stocks and shares Junior ISA. Your child can have one or both types of Junior ISA. Parents or guardians with parental responsibility can open a Junior ISA and manage the account, but the money belongs to the child. The child can take control of the account when they are 16, but cannot withdraw the money until they turn 18.
Only parents or a guardian with parental responsibility can open a Junior ISA for under 16s. Children aged 16 and 17 can open their own Junior ISA, as well as an adult cash ISA.
Would you like to find out more?
If you would like to discuss more about investing for a child and the options available, please get in touch by calling 0116 269 6311 or email email@example.com. Our team of independent financial advisers are highly experienced at finding the best investment solutions for you and your family and can guide you through you the options and choices available to you.
Past performance is not a reliable indicator of future performance.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.