Published On: Sun, Aug 30th, 2020

Junior ISA: Parents and grandparents can take this action for children’s savings | Personal Finance | Finance

Junior ISAs or JISAs are long-term savings accounts, which offer tax-free benefits, and they are used by thousands each year. To secure a Junior ISA, a child must be both under the age of 18 and living in the UK. There are two types of JISA – cash or stocks and shares – and parents can choose one or both methods.

“This is, of course, dependent on how long a parent would like to put money away for, as some will not want their children to receive the Junior ISA funds when they are 18.

“Based on £9,000 a year for 18 years, assuming a really quite modest return of five percent a year, an 18 year old would end up with more than £250,000, which is staggering.”

If a person chooses to let this amount grow for an additional three years, they could also increase the amount their child ultimately receives exponentially. 

Mr Norton added: “Contributors, in this instance, would be putting away another £27,000, but actually if it was left until a child turned 21, you would have £337,000.

“If you left it for 25 years, then you would ultimately have £451,000.

“Junior ISAs are always a great way for people to invest for their children if they can afford it, but these numbers are frankly incredible.”

However, Mr Norton also suggested that investing in a stocks and shares Junior ISA could ultimately prove better than investing in cash.

He stressed the importance of having a strong cash reserve before investing, but also highlighted the benefits of doing so.

He said: “If you look at a more modest investment in a stocks and shares Junior ISA, where someone is investing £100 a month for 18 years, and assuming a five percent return, they would end up with roughly £34,500 – which remains a transformational figure.

“However, a reasonable cash return at present is one percent, which means for 18 years this would create £23,500.

“The difference is huge, and a lot of parents may mistakenly think they are doing the right thing by saving into a cash ISA.”

Nonetheless, Mr Norton did stress the importance of thinking about this kind of decision carefully to ensure finances are robust enough to weather any unexpected storms.

However, he concluded that once sufficient emergency cash was considered, taking some investment risk in the long term is likely to put Britons in a much better place. 

Source link

About the Author