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How to get £50,000 for your child when they turn 18
You'll need to save less than you think
THOUSANDS of school children are sitting on tax-free savings pots worth thousands of pounds - and parents can start building a nest egg for their kids with just £25 a month.
The number of children with £50,000 or more saved into junior ISAs (JISAs) has doubled year-on-year.
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Over 16,420 children have amassed pots worth more than that, a Freedom of Information (FOI) request made by RBC Brewin Dolphin to HMRC has revealed.
However, the top 50 child investors are now sitting on pots averaging £761,000 – putting them firmly on track to join the millionaires' row in their 20s.
A JISA is a tax-free savings account for those under 18.
Unlike an adult ISA, the savings cannot be touched until the child turns 18, at which point the funds can either be withdrawn by the holder or transferred into an adult ISA.
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The savings accounts were first launched in 2011 for children under 18.
Parents can choose between cash JISAs and stocks and shares JISAs.
DIFFERENT TYPES OF JUNIOR ISAs
THERE are a two different types of junior ISAs, including cash ISAs, stocks and shares ISAs.
A cash JISA works similarly to a regular savings account but with the added benefit of tax-free interest.
These typically offer lower returns than a stocks and shares ISA.
These are perfect for individuals looking for a low-risk, stable way to save money without worrying about market fluctuations.
A stocks and shares JISA allows you to invest the money in various investments, including stocks, bonds, and investment funds.
These come with a potential for higher returns compared to cash ISAs, but with the added risk that the value of investments can go up and down.
You'll also need to consider any extra fees or ongoing charges when investing your savings.
Initially, the amount that could be paid into a Junior ISA was limited to just £3,600 a year, but today, the annual ceiling stands at £9,000.
Rob Burgeman, investment manager from RBC Brewin Dolphin, said: "Junior ISA wealth is booming as more and more families take steps to help the next generation navigate a world of costly tuition fees and ballooning house prices.
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"The annual £9,000 JISA allowance is less than half of its adult counterpart, and for that reason, very few people ever imagined that there might be schoolchildren sitting on pots of £750,000 or more.
"HMRC's figures, however, underscore the value of long-term planning and the power of compounding."
However, not every family has the means to amass hundreds of thousands of pounds in their child's JISA - a more modest pot worth tens of thousand of pounds is still within reach for many.
These accounts are intended to act as a savings pot for your children in the future, so you cannot withdraw cash once invested.
Only your child can withdraw or reinvest the cash once the JISA matures when they turn 18 years old.
That's why it's important to ensure that whatever you save into the account as a parent is affordable.
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GROW YOUR CHILD'S SAVINGS
Rob said: "Starting at birth, a £50,000 pot could be built by the child's 18th birthday on contributions of roughly £150-a-month, assuming annualised returns of 5% after charges.
"Increase the contribution to £300 a month, and the Junior ISA will be looking at a windfall of around £100,000."
Even then, you don't need to save that much to build a substantial amount of savings for your offspring.
If you were to save just £25 a month into a JISA for the full 18 years, with typical annual returns at 5%, the pot would be worth £8,828 on maturity.
A monthly investment of £50 would see a pot grow to £17,656 after 18 years.
And a £75 monthly investment will generate a pot worth around £26,483 at maturity.
Plus, if you claim child benefit but don't need to spend the weekly allowance to cover any bills or payments, it could be worth investing this directly into a JISA, too.
Parents who receive child benefit receive £25.60 a week (£102.40 a month) for their first or only child and £16.95 a week (£67.80 a month) per subsequent child.
If you only had one child and were to invest the £102.40 monthly amount into a JISA every week for 18 years, you'd earn at least £36,159, assuming annualised returns of 5%.
It's important to note that child benefit payments are usually uprated each April, so if you kept increasing your monthly payments in line with this, the pot could mature at an even higher level.
FINDING THE BEST CASH JISA
If you want to set up a cash JISA you'll want to hit the comparison websites.
Don't waste time looking at individual banking sites to compare rates - it'll take you an eternity.
Research price comparison websites such as Compare the Market, Go Compare and MoneySupermarket.
These will help you save you time and show you the best rates available.
As a benchmark, you'll want to consider any account that currently pays more interest than the current level of inflation - 2%.
Currently, the top-rate cash JISA from Beverley Building Society pays 5.2% interest on savings annually.
That means if you invest £1,000 in this account, you'd earn £53.26 in interest after 12 months.
SETTING UP A STOCKS AND SHARES JISA
Before you set up a stocks and shares JISA, you'll want to determine if you wish to manage the investments yourself (DIY) or prefer a managed fund in which professionals make the investment decisions.
DIY ISA platforms, such as Hargreaves Lansdown, Interactive Investor and Vanguard, offer JISAs.
With these platforms, you'll need to build your own portfolio and keep track of it.
It's important to compare account charges, such as platform fees, fund charges, trading charges, and exit fees.
Of course, these fees will vary depending on which fund or stock you choose to invest in.
If you're looking for a less hands-on approach, then a managed stock and shares JISA might be better suited to you.
Platforms like Nutmeg, Moneyfarm and Wealithy help customers choose an investment portfolio based on risk, while considering your investment goals.
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However, it's important to note that these platforms won't be the cheapest as you'll have most of the work done for you.
For more information on investing in general, visit www.ii.co.uk/insight-and-ideas.
CHILD CASH WARNING
IF you had a child between September 1, 2002 and January 2, 2011, you may have saved into a child trust fund (CTF) on their behalf.
When CTFs became available, HMRC sent the parents or guardians of qualifying children a starting payment voucher of £250 (or £500 if they were on a low income).
This voucher could then be used to set up a CTF account in the child’s name.
If you didn’t use the voucher within one year, HMRC would set up a CTF account in your child’s name on your behalf.
Money in a Child Trust Fund account belongs to the child and is "locked in" until they turn 18.
There were three types of accounts that could be opened with the voucher:
- Cash Child Trust Fund: This is where you could make deposits just as you would for a bank or building society account, which can earn tax-free interest.
- Stakeholder Child Trust Fund: This is where the savings in the account are put into a wide mix of low-risk stock market investments.
- Shares-based Child Trust Fund: The savings in the account could be put into the stock market via an investment fund of your choice or select your own investments.
The savings would grow over time thanks to tax-free returns.
However, if your child is still under 18 it could be worth transferring it into a JISA as these typically offer better interest rates.
To do this, you'll need to find a provider that accepts transfers in from a CTF.
So check with your provider to find out.