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Junior ISAs to prove a smash hit

Junior ISAs to prove a smash hit

Category: Savings

Updated: 18/10/2011
First Published: 18/10/2011

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 It is now over 6 months old so the content may be out of date.

The launch of the new Junior ISA accounts is less than two weeks away and the indications are that they are to prove a smash hit.

ISA accounts for under 18s are to be introduced on 1 November to plug the hole left by Child Trust Funds (CTFs), which were withdrawn by the coalition Government as part of its efforts to trim the budget deficit.

The new accounts will allow parents, family and friends to save for children, with up to £3,600 allowed to be invested each year.

The annual limit for existing CTFs will also rise to £3,600 to bring them into line with the new accounts.

Like their grown up counterparts, Junior ISAs will be tax free, making them the most tax efficient way to save for your children.

A range of banks, building societies and other financial institutions are expected to unveil their versions.

And figures from JP Morgan suggest that the accounts will prove popular.

More than a third (36%) of parents said they are likely to open a Junior ISA once they become available, while a further 43% of people would contribute to a Junior ISA if one was opened by a close friend or relative.

Parents said they would contribute an average of £1,115 per year, while additions by friends and relatives look set to average around £540 a year.

"It is encouraging to see that it is not just parents who would consider contributing to a Junior ISA, and that it is the wider network of family and friends and in particular grandparents who also realise the importance of saving for a child's future in a tax efficient way," said David Barron, head of investment trusts at J.P. Morgan Asset Management.

Calculations show that 18 years of investing the average contribution pot of £1,117 every year (£93 per month), assuming a 5% return per annum, would mean a savings pot worth over £34,000 by the time the child turns 18.

"The impact of saving £93 per month is significant, particularly when saving in the current environment can be challenging," added Mr Barron.

"However, if savers are looking to a Junior ISA to fund large future outgoings, such as perhaps university fees (up to £27,000 over three years), they could consider trying to increase their contributions.

"Saving the total Junior ISA amount of £3,600 per annum (£300 per month) could result in a sum of over £100,000."

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