HOLLY MACKAY: Children have time on their side to benefit from investment risk - Why I back Jisas over toys every time
![Growth: Holly - with Bee and Hamish - recommends equity Jisas](https://i.dailymail.co.uk/i/pix/2015/05/09/13/2875F20600000578-3074671-image-a-16_1431176057969.jpg)
Growth: Holly - with Bee and Hamish - recommends equity Jisas
Independent fund expert, and mum, Holly Mackay explains how to give the children in your life a gift with real long-term value...
Princess Charlotte is unlikely to be short of a bob or two growing up, but the new Royal baby’s parents could still do a lot worse than investing in a tax-friendly Junior Isa for her.
Many parents already have money invested in Child Trust Funds and now switching to their shinier, newer cousins – known as Jisas – has been made easier.
It will take just a few minutes, give children access to better performing investments and save money too.
More than six million children born between September 1, 2002 and January 2, 2011 had a Child Trust Fund opened on their behalf, with a £250 or £500 voucher from the Government to help kick things off.
Nearly £5 billion was tucked away in these accounts before they were usurped by Junior Isas in 2011. Currently, a maximum £4,080 a year can be poured into a Child Trust Fund – or Junior Isa – with returns building free of tax.
Contributions can be made by anyone, making a top-up a great birthday or Christmas present for relatives fed up with giving plastic toys from Taiwan.
The plans become the property of the child as soon as they hit 18. Child Trust Funds were poorly explained and unexciting when they were made available to new parents under previous Labour governments.
Back in 2008, my phone rang off the hook as fellow National Childbirth Trust (NCT) mums took a pause from talking about colic and asked me if they should invest their Child Trust Fund money in cash or shares.
I remember staring at the Government’s brochure on the plans wondering who on earth the Independent Order of Foresters were – and why it or any of the other authorised providers could do a good job of looking after my children’s money.
Investment choice among fund providers was limited and by today’s standards fees were high. Many parents who set up a Child Trust Fund invested in a ‘stakeholder’ fund that carried high annual fees of 1.5 per cent and delivered unexciting investment performance.
By moving this money to an equity-based Jisa, the investment options open up as these accounts are available through online brokers that provide a wide selection of funds.
Their fees are keener too. I worked out I will be saving about £50 a year by moving my children’s fairly small value Child Trust Funds (run by The Share Centre) to Jisas (run by Hargreaves Lansdown).
I have also been able to pick better investments for my children Hamish, seven, and five-year-old Bee.
Loophole on limits
The change in the Child Trust Fund regime has created an opportunity for parents to put up to three times the usual yearly amount into the accounts. This is because the Child Trust Fund contribution year is calculated from the child’s birthday whereas the Jisa’s is marked by the tax year, which starts on April 6.
Let’s say Tom was born on July 1, 2008 and no contribution has been made since his birthday last year.
His parents could now invest £4,080 before July 2015, contribute the next year’s Child Trust Fund allowance of £4,080 in July – and then transfer the plan to a Jisa and invest £4,080 before April 5, 2016, using the Jisa allowance for this tax year. This way, his parents could invest £12,240 by the end of the tax year on Tom’s behalf.
Where to invest
Government statistics show that just 29 per cent of Jisas are invested in equities, but I believe most plans should be investment-based, not in cash. It may seem counter-intuitive for parents to take investment risk since stock markets are volatile.
But parents investing for a child at primary school into an account that cannot be accessed until they are 18 are likely to see the money grow more in shares rather than cash.
If your child is a toddler I would go further and say that investing in cash makes little sense. The bolder, the better. Investing in spicier areas such as emerging markets over 18 years is a sensible strategy.
The next step
To make the move from Child Trust Fund to Jisa, parents need their child’s Unique Reference Number printed on the Child Trust Fund statement. They can then open a Jisa online with a provider using the reference number to complete the transaction.
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