September. Back to school. University. Work. Autumn leaves when the grass is jewelled. It’s the new, new year, which means the chance to put into action the resolutions you dreamt up while on holiday.
If you’ve got kids, or are expecting the pitter patter of tiny feet, then starting to save money for them might well be on your September to-do list.
There are more reasons than shielding cash from the taxman to open an ISA for the apple of your eye.
Cash or Stocks and Shares Junior ISAs can be opened by parents for their children, then anyone can pay into them. The money is locked away until the child reaches 18.
Over 18 years, £50 a month invested in a Stocks and Shares Junior ISA with a 5 per cent annual return would generate £17,460, which could help pay university fees or a deposit for a property.
18 years is a long time not to be making the most of a tax break.
Even if you can’t afford to put aside £50 a month, many Junior ISAs can be opened with as little as £1, then you can make contributions as and when you can.
Risk v reward
But not all Junior ISAs are created equal.
Cash returns, although better than on standard cash savings accounts, are still poor relative to returns from stocks and shares junior ISAs (no more than 3 per cent, compared with annual returns of 7 to 10 per cent from stocks and shares currently).
If you are risk averse and really don’t want to move up the “risk curve” from cash to shares, take it from us and the many, many advisers that say the same thing: unless you are within five years of withdrawing the funds, then your balance should be in stocks and shares rather than cash.
Keeping fees low is another thing to bear in mind. Returns can be eaten away by fees over time. Low cost means any fund with an Annual Management Charge of less than 0.8 per cent, in reality.
A planet for them to live on
If, like us, you want your children’s cash to be invested sustainably, then that further limits your options.
Our investigation into the market for GOOD, or ‘ethical’ JISAs found a lack of ethical options overall among mainstream JISA providers, a lack of transparency into where funds are actually invested, and a high level of confusion around which options are actually ethical. Many so-called ‘ethical’ JISAs invest in some fairly ‘unethical’ sectors.
Most funds with a sustainability or social theme are open to junior ISAs, so you can invest in them in exactly the same way you would your own ISA, using an investment platform.
( Becky, the other Good Money Girl, has put her sons’ money in a combination of Alliance Trust Sustainable Futures Absolute Growth, Jupiter Fund Managers Ecology 1 and Kames Ethical Equity.)
Top 8 reasons to open a junior ISA:
- Anyone can pay into a Junior ISA – parents, grandparents, godparents, Auntie Helen….
- Up to £4,080 per child can be saved in a Junior ISA tax free, every year
- You can save or invest from a minimum of £1
- You can set up a direct debit to pay into it monthly
- You could use it to introduce your child to the concept of saving
- Your child can’t access the money until they are 18
- Your child will be eternally grateful (even if they don’t realise it straight away)
- You will make them financially independent sooner 😉
But also bear in mind that you can use your own ISA allowance to save for your children too, it doesn’t have to be an ISA in their name. Setting up bare trusts is another option, and the Lifetime ISA, when it comes in in April next year, will be yet another.
You can even open a junior SIPP for your kids – a pension that they can’t touch until retirement. EQ Investors, which offers Positive Impact Portfolios, has some more information on some of these other options in its “Investing for Children” guide.