If you are a parent or a grandparent interested in saving for the future of a child, one good way is to utilize a Junior Individual Savings Account (JISA).
Taken from data since the JISAs were introduced in November, 2001, Her Majesty’s Revenue and Customs (HMRC) has reported that approximately £1.7 billion has been added to JISAs with about approximately 3/4ths of the money has been added to cash accounts.
Because of their taxation advantages, these are popular accounts, even though they offer lesser return on investment (ROI) than standard savings, such as on their adult counterparts, the Individual Savings Accounts (ISAs). That being said, it is possible to obtain 3% interest rates in some situations.
JISAs and ISAs generally function in the same manner. There are two primary differences; namely, that children cannot receive the money or its proceeds until they turn 18, and there is a lower annual allowance that was, in both 2015/16 and 2016/17 at £4,080. There is one exception to this and that would be in the event of a transfer of their savings at the age of 16 or older to an grown up ISA.
Interestingly, both 16 and 17 year olds can have a JISA AND an ISA, thereby making it possible to tuck way £19,320 per year from the tax collector. Also, with the exception of a child being 16 years or older, JISAs need to be opened up by a legal guardian or a parent, NOT a grandparent directly. However, after set up, anyone can deposit into the JISA.
It should be kept in mind that even though an upcoming allowance for savings will let those with lower rates earn £1,000 per year on tax free savings (this being over and above the savings tax of £10,800 anyone can earn before paying income tax), JISAs ought to be considered first because any savings in a JISA can be kept without paying taxes until it is withdrawn.
The data says that just by depositing £340 a month into the junior account from date of birth until the child is 16 would cost a total of £65,260 overall. For example, if the Coventry Building Society’s best-buy JISA is utilized at an interest rate of 3.25%, this would earn £20,212 or a grand total of £85,472.
There are various ways to calculate interest rates and one should not hesitate to ask for assistance if needed. Lesser amounts can be invested, for example, with the power of compound interest bringing significant yields.
In addition, just like ISAs for the grownups, there are shares and stock options available on the JISA and the younger the child(ren), the best it would be to look into this.
Because of the money being locked in until the age of 18, investing for a child may be a better way of doing things, according to those in the know because of time available to bear up under the fluctuations of the market vis a vis working with the fixed interest on cash.
Long term investing can be difficult for young families but if possible, it should be a consideration.
Even pre college, you teenagers may well have expenses, just like insuring a first car, paying for driving lessons and then…
Interestingly, the experts say that grandparents often want to give financial help but are hesitant to ask. It is suggested that parents ask them! Perhaps they might want to reduce their own liabilities for such things as inheritance tax. Keep in mind when you ask that this is for your children and their grandchildren.
It would be a good idea to educate your children about the terms of the JISA, although no monies can be withdrawn until a child turns 18, but with exceptions may be made under circumstances of terminal illness and death. BUT, only the child may withdraw the monies at age 18, so they need to be told what is expected, e.g., no partying!
One angle could be if the child has expressed an interest in investing, with the right amount of input, there are do-it-yourself (DIY) accounts that, with the right supervision, would afford an opportunity for learning (and earning).