My daughter is almost 7 now, and we are beginning to teach her about money, and saving for things she wants. Alongside that, we are explaining that it’s a good idea to save money for your future as well. With that in mind, today I am sharing reasons why saving for your child’s future, with a Junior ISA is a great thing to do.
Saving For Your Child’s Future
I personally feel it’s important for all children to learn the art of saving (and spending) money as early as possible. Our son had a savings account at the post office within a week of being born. We did this so we could pop in the money friends and relatives gave him. When our daughter came along, we realised that if we wanted to make the kids’ savings a long term investment, it made sense to opt for a Junior ISA instead. There were several reasons for this, but the most important for me was that we can’t withdraw the money once it’s deposited. It sits there until your child turns 18 (unless there are exceptional circumstances).
Junior ISA Information
A Junior Individual Savings Account (Junior ISA) allows you to deposit £4,260 per tax year for each child. Additionally, it’s worth noting that amount is increasing to £4,368 for the 2019/20 tax year. Each child can have ONE Junior Cash ISA and / or ONE Junior Stocks and Shares ISA. However, no more than £4260 in total, can be deposited between the two each year. (That will be £4368 next year).
Junior Cash ISA
A Junior Cash ISA earns interest like a regular savings account. The interest rate is fixed, and usually varies from between 2.5% to 3.6% per year. This means that if you invest £1000 for your child, they will have up to £1036 by the end of the year. If you do the same each year for 18 years, they can expect to have anywhere between £20,000 and £25,000. (Depending on annual interest rates).
Junior Investment ISA (AKA Junior Stocks and Shares ISA)
A Junior Stocks and Shares ISA is higher risk. However, it has the potential to earn your child more than a Junior Cash ISA would. If you invest £1000 a year into one of these… Your child could have less than £18,000 to come, or more than £30,000. It depends on how well their investments do. Personally, I think this option is too risky if it’ll be your child’s University buffer.
Pros and Cons
There are several pros and cons for opting for a Junior ISA when saving for your child’s future. One massive Pro is that the money is safe. It’ll sit there and cant be accessed by anybody before your child turns 18. The ISA has to be set up by a parent or guardian, but anybody can pay into it for them. (Up to the annual limit, anyway).
When I turned 18, I didn’t go to Uni, and was busy partying hard. I think if I had been handed £18,000 then… I’d have gone off and travelled the world. My parents would probably have hit the roof if I did that! Remember that the day your child turns 18, that money becomes theirs, and there is nothing you can do about it. For more information on Junior ISAs, check the Gov.uk!
Finally, if you enjoyed this post, check out more of my family content!