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Bank of mum and dad, start your kids saving with a Junior ISA

By Mike Narouei, Content Producer at Boring Money

21 Feb, 2019

When you switch off the colourful world of CBeebies and switch on the news, it’s tricky to predict what the future will hold for our kids. Climates are changing, political divides are shifting, and technologies are evolving faster than ever. But one thing is for sure… the future will still cost money. That’s why it’s so important to get the kids saving early – setting aside whatever you can, no matter how small or infrequent – and giving them the best possible start when it’s their turn to take the reins.

Why a Junior ISA is a great account to start with

  • Tax-free savings of up to £4,260 a year per child (£4,368 from April 2019)

  • Easy to get started with as little as £25 a month

  • Choice of either cash or shares

  • The kids can’t touch the money until they turn 18

Plus…

  • Chance to teach the kids about saving and the stock market

  • Grandparents can easily pay in to a child's ISA too

  • Gives them a head start with uni fees, driving lessons or other adult expenses

Cash or shares: which will grow our money more?

A Junior ISA savings account is effectively just an empty tax-free wrapper. When it comes to what goes inside, you have a choice between cash and shares.

60% of the UK’s Junior ISAs are in cash. But, really, we think that’s got a lot to do with people fearing the stock market. “It’s too risky,” they might say. But we disagree. When you have a timeframe of 10 years or more to invest, the risk of shares is minimised because you’re in no rush to withdraw your money – you can ride out the highs and lows of the stock market tide.

Over a 10-year period, shares grow more than cash 9 out of 10 times. Over an 18-year period that rises to 9.9 out of 10.

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Who should I open my children’s Junior ISAs with?

If you want control over what you invest in…

Many parents choose an investment platform over a bank for the wider choice of investment options. Hargreaves Lansdown is a popular choice – not that cheap but decent value with a good track record. Other mid-range options are AJ Bell Youinvest and Fidelity.

If you want to invest but aren’t too confident…

Funds are going to be your friends. These investment ready meals are available through most platforms and take out most of the legwork. We recommend one of Vanguard’s LifeStrategy funds or one of Fidelity’s ready-made options. Alternatively, use a robo-advisor like Wealthify (/)or Wealthsimple to manage it all in a sleek, simple app.

If you’re really set on a cash ISA…

A price comparison site will be able to show you the best child ISA interest rates on offer and what else you’re signing up to – some accounts may have bonuses or minimum payments to consider. As it stands, the best rates on the market are 3.6% from Coventry Building Society, 3.45% from Danske Bank, and 3.25% from TSB.

Use our Best Buys filters to compare customer ratings and expert reviews of 15 Junior ISAs.

Help them save now or bail them out later

Last year, research by Legal & General showed that 2 in 3 UK parents are still having to help their children out financially when they reach their 20s, 30s and 40s. 1 in 4 of these parents are forking out over £1,000 a year. And, according to Aldermore, if your adult kids still live with you it could cost around £5,000 a year in extra food, petrol and energy bills – a shocking £20 billion across the nation.

Now we’re not saying you’ll avoid all these big-ticket expenses simply by chucking a few quid away each month until your kiddos transform into grown-ups, but it can’t hurt to try. Besides, if they have a decade or so to earn interest or grow an investment in their Junior ISA, the money you chuck in now will likely be worth a heck of a lot more when they come to take it out again. Well… unless by that point we’re paying with shells and bottle caps after the ice caps melt or the machines take over. But for now that seems unlikely.

For more parental pearls of wisdom, check out our Tired Parents learning path and Junior ISA guide.