Junior ISA’s 10-year anniversary: Parents may wish they had invested, not saved cash.

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November 11, 2021 - Paul Hubbert

Junior ISA’s 10-year anniversary: Parents may wish they had invested, not saved cash.

November 2021 marks the 10th anniversary of the Junior ISA, the tax efficient savings and investment account available to children.

Three fifths of Junior ISAs are held in cash, according to research by F&C Investment Trust. However, it appears returns regret has bitten some parents – upon realising the financial returns missed by saving, a third of those parents say they wished they had invested the money instead.

Money that has been held in cash-based accounts will have struggled to produce meaningful returns in recent years because of historically low interest rates. The added pressure of inflation, or sometimes referred to as the rise in the cost of living, means money held in cash savings for long periods of time has produced disappointing returns and unlikely to have grown 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. Money well invested and left to grow may typically have performed much better over the same long time frame.

The solutions for children’s accounts may not always seem 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 can be 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 where appropriate, consider opening a Junior ISA accounts. Typically, when when investing in any capacity you should plan to hold that money for at least five years.

 

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 can 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 assess whether it continues to meet your needs.

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. Only parents or a guardian with parental responsibility can open a Junior ISA for a child who is under 16. Children aged 16 and 17 can open their own Junior ISA, as well as an adult cash ISA.

One factor parents should be aware of before saving or investing in a Junior ISA is that once a child turns 18, it becomes their money to do what they like with. While you might hope all your hard-earned savings might go towards something sensible such as a deposit for a property or on tuition fees, you ultimately won’t have the final say on how the money is spent.

 

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 info@furnleyhouse.co.uk. 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 the options and choices available to you.

 

 

Sources 

https://www.gov.uk/junior-individual-savings-accounts

 

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.