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Prepare your child’s financial future with a JISA

Prepare your child’s financial future with a JISA

Category: ISAs

Updated: 31/10/2017
First Published: 03/02/2016

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 It is now over 6 months old so the content may be out of date.

Everyone wants to do the best they can for their children, and that includes sorting out their future finances. This can be easier to achieve than it may sound, as research shows that utilising your child's Junior ISA (JISA) allowance means you could give them a £100,000 present on their 18th birthday…

Start saving with a Junior ISA

According to calculations by Fidelity International, maxing out your child's JISA allowance every year could leave them with a fantastic savings pot of £106,209.07 when they turn 18 (based on 5% growth per annum, together with a 0.75% annual management charge and platform service fees), and it need only require an investment of £78.46 a week.

However, you needn't save that much to give your child a usable sum when they turn 18. Fidelity's research found that things like paying for driving lessons, a first car, university fees and even funding a gap year can tot up to £40,000+, a figure that could be achieved by saving a mere £31 a week (which, over 18 years, will result in savings of £41,866.06).

Saving up for those kinds of things well in advance can be far more cost-effective, and giving your child the freedom to pay for them themselves – the JISA will be in their name and will be available to them when they turn 18 – can give them added control and help teach them the value of money.

"Raising children can be expensive and it's never too early for parents to think about how they can start to save for them," said Maike Currie of Fidelity International. "The sooner you start saving [into an ISA], the longer your investment has to grow, and the longer you'll benefit from the magic of compounding – the effect of generating earnings on top of previous earnings.

"Saving into a Junior ISA is also a great way of spreading the cost of giving your child a head start in life, as well as the financial freedom they will yearn for when they reach their 18th birthday."

Beware of the risks

However, there's one caveat to achieving these kinds of returns – the calculations are based on investments in a stocks & shares ISA, rather than a cash-based account. This gives the potential to secure higher returns, but it also comes with added risk, and for this reason may not be suitable for everyone.

Nonetheless, for many, a stocks & shares ISA could be the perfect way to build a fund for their child's future – they're often thought of as long-term investments so that any market volatility will even out over time, which makes an 18-year timeframe ideal. Parents needn't even worry about investing significant amounts in one go: "Saving each month [is] much easier than stumping up a large lump sum each year," added Maike. "As our analysis shows, even a small amount of money invested regularly can build into a sizeable sum."

What next?

Find out more about stocks & shares ISAs

Not comfortable with the level of risk? Compare cash ISAs instead

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.