Holly’s Tips: Saving for the children
By Holly Mackay, Founder & CEO
There are generous tax perks around for anyone with the extra readies to save for their children. Every child can have a Junior ISA (JISA) and have up to £9,000 a year paid into this, and any profit on this money will remain tax-free.
So if you are Lord and Lady Muck, with 2 aristocratic children, that could be £20,000 each into your adult ISA AND £9,000 each for the kids = £58,000 per family every year in tax-quarantined savings. Nice!
Back in the real world, one alternative is to set up a Junior ISA – which you can do with relatively small amounts, typically from around £50 - £100, and then ask relatives to pay into this on birthdays or Christmas. Little and often is OK.
Some key facts about Junior ISAs
Junior ISAs can be set up for any child younger than 18 in the UK.
Junior ISAs come in 2 flavours – cash and stocks & shares. The one you pick is up to you and your attitude to risk. However do bear in mind that the younger the child, the more it makes sense to consider stocks & shares ISAs, as by definition they have time on their side to ride out volatility.
Cash Junior ISAs do offer more compelling interest rates than mainstream cash ISAs. As at October 2022, you can find rates of 2.9% for these.
Junior ISAs are available up until a child’s 18th birthday. After this – and here’s the rub – the money is theirs. They get the money, not you. So there is nothing to stop them from scooping the loot and running off to Koh Samui. However in practice, data suggests this does not really happen and most Junior ISAs roll over to adult ISAs, and the savings habit continues. If you are nowhere near maxing out your own ISA allowance (£20,000), then you could just save into your ISA, mentally ringfence it for the kids, and then you have control of the money!
Child Trust Funds were Gordon Brown’s idea – I vaguely remember getting a bag full of promotional goodies and a leaflet telling me that £250 would be paid into a Child Trust Fund for the kids, when I left the hospital with them. I have long since swept this old Child Trust fund into a Junior ISA for my kids. Child Trust Funds were phased out in 2011. If you can’t quite remember what happened to yours, it’s worth checking. Some teenagers might not be aware that there is a cash pot in their name waiting to be claimed as 1.8 million of the around 6.3 million Child Trust Fund accounts set up throughout the duration of the scheme were done so by HMRC, where parents or guardians did not open an account. This link will help track them down.
A key barrier for many is not knowing where to start or who to choose. Since 2018, we have been recognizing the best investment platforms in the UK, so we have done the hard work for you. Check out our JISA award winners.
