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Could your newborn become an ISA millionaire?

Could your newborn become an ISA millionaire?

Category: ISAs

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Many parents like to set up a savings account for their newborn, and with good reason – it can give them a valuable nest egg for the future, perhaps to help with a first home or university costs, giving them less to worry about as they approach adulthood. But what if you could give them an even better payoff and help them become a millionaire? According to research, it's certainly possible…

Huge payoff on the horizon

Calculations from Alliance Trust Savings show that parents who open a Junior ISA (JISA) for their newborn today could see them become a millionaire in a few decades' time, simply by paying in the full JISA allowance from birth.

The child will then need to use their own initiative as well, and continue paying in the maximum investment allowance into an adult ISA once they're able to. If they do, the pot could be worth more than £1m by the time they're 42 years and seven months old.

Not only that, but the millionaire mark could come even quicker if the adult ISA allowance
increases to £20,000 in 2017, as expected – if today's newborns are able to stash away that much in the future, they could be ISA millionaires by the age of 38. And, if they continued saving until the age of 65, they could have an investment pot worth nearly £3m at current maximum contribution levels, or almost £3.75m with the £20,000 contribution limit.

Healthy savings pot

However, if your child wanted to withdraw the cash at 18 for their own use, they'd still have a pretty healthy savings pot. If the full amount had been invested in a JISA until the age of 18, as well as in an adult ISA from the age of 16, they'd have a pot worth £106,608 on their 18th birthday.

However, this is based on investments in a stocks & shares JISA (in this case, the Alliance Trust Junior ISA), rather than a cash alternative, as this gives the potential for better returns. Granted, these accounts come with a lot more risk, but given that the investment term is for at least 18 years, that's plenty of time to weather any volatility and (hopefully) be left with a healthy sum.

As Sara Wilson of Alliance Trust Savings says, "many parents save regularly for their children's future and, with extra contributions from grandparents, friends and relatives, the money can quickly build up". So why not get saving? It could be one of the best things you do for your children, and with the potential to help them become a millionaire, there's even more reason to get started.

What next?

Compare the top Junior ISAs to see if you can find an account that meets your needs

Find out more about stocks & shares ISAs to see if this route is worth considering

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.