Saving into a Junior ISA (JISA) can be a good way of saving towards a child’s or grandchild’s future, but new report has found that many are saving into cash JISAs and could be missing out on better returns offered by investment JISAs.
The report by Quilter on levelling-up children’s investments highlights that few JISAs are invested compared to Child Trust Funds (CTF). JISAs were launched 10 years ago to replace CTFs, however unlike CTFs which every child born between 1 September 2002 and 2 January 2011 was eligible for one account which was opened with a £250 deposit from the Government, JISAs do not benefit from a Government deposit and the child can have both one cash JISA and one investment ISA. Up to £9,000 can be deposited into a JISA tax-free for the 2021/22 tax year.
Despite being able to open both a cash JISA and investment JISA, the report found that parents and grandparents are just choosing to open cash JISAs, which could result in the child missing out on potentially better returns from long-term investments.
“When it comes to the UK’s savings behaviours, cash is king,” said Heather Owen, financial planning expert at Quilter. “Relatively few people choose to invest their savings in the stock market and instead favour current or easy access savings accounts, despite the historically poor returns on offer. Cash is favoured for both adult ISAs and Junior ISAs, with over two-thirds of such accounts being cash only products.
“While holding cash is no bad thing, favouring cash over investments is unlikely to build long-term financial prosperity as savers will miss out on the miracle that is compound growth, and inflation may simply erode the real value of their savings.
“Holding too much in cash is particularly unsuitable for children holding JISAs as the money will be locked away for up to 18 years, meaning any stock market volatility can be smoothed and the scope for compound growth is much greater.
She added: “We have an opportunity to create a new generation of investors entering adult life with the best possible financial start. And that means avoiding the meagre returns on offer from cash products in favour of letting compound interest work its magic.”
Parents and grandparents considering opening an investment JISA on behalf of a child should be aware that, as with all investments, they come with the risk of the money deposited not making any returns. As well as this, there is the possibility that the child will lose all the money invested, including the initial deposit.
