Nowadays the bank of ‘mum and dad’ has to provide, in many cases, a kick-start for children with further education, car and driving lessons and a deposit for a house. In fact, parents’ finances have to stretch a long way.
But, with a little forethought, saving ahead for these milestones can make them more attainable – a Junior ISA may be part of the solution. A mini-version of the long-standing and popular adult ISA, the Junior ISA allows parents, grandparents and family friends to invest in cash and stocks and shares, but on behalf of their children.
The need for long-term savings for children has never been greater with the spiralling cost of university fees, increasingly large deposits required for first-time house buyers and life’s other inevitable expenditures, mean that children today are likely to face significant financial pressure as they enter adulthood.
It will be nearly impossible for them to stay out of crippling debt without the continued financial support of parents and grandparents.
Even small amounts of money invested regularly can make a huge difference over time although the national average held in a Junior ISA already stands at £1,614.
The Junior ISA limit is £4,128 for the tax year 2017/18. If more than this is put into a Junior ISA, the excess is held in a savings account in trust for child – it cannot be returned to the donor. Parents, friends and family can all save on behalf of the child as long as the total stays under the annual limit.
Putting away £50 each month over 18 years, assuming an annual growth rate of 4%, could leave you with a pot of £15,800.
Junior investment ISA are readily available from discount brokers, fund supermarkets or through financial advisers.
But check the charges to make sure you are getting value for money.
Some providers will charge an initial fee, some will not, and others charge for switching investments.
Probably the most surprising trend is that 68% of Junior ISA accounts have been opened on behalf of older children.
The average amount held for older children is also considerably higher.
At £2,988 it is, in fact, 60% more than the average for babies (£1,838), as parents try to save as much as possible in a shorter period of time.
Parents should bear in mind that, at age 18, a Junior ISA (and CTF for that matter) goes straight to the child and therefore it is entirely their decision what the money is spent on or if the money is to be left invested (rolled into an adult Isa, for example).
Junior cash ISAs are available from most banks and building societies but independent advice can help you to find the best product for your needs.
For more information on pensions, investments and inheritance tax planning contact Ben Morris on 01745 798260 or 07810 883200.
