Did you know that if you invest just £100 a month in the Government’s ISA child scheme every month from birth to when your child turns 18 at with 10% returns a year they will have over £60,000. That’s a massive profit of nearly £40,000 from Junior ISA contributions of under £22,000.
And the best part? Your children don’t have to give any of that profit to the tax man because JISAs are tax-free investment accounts.
According to Hargreaves Lansdown, last year was a record year for HL JISAs. This could be because the financial strain on many parents eased, and gave more people the space to plan ahead for the whole family. Meanwhile, endless rumours about potential tax changes that could be on the horizon, persuaded more people that the JISA provided a straightforward way to save tax.
This makes now the perfect time to start investing for your children. JISAs can make a major difference for life, so here are six very good reasons to start investing for your children in an JISA.
You can make a lot from investing a little
Don’t be put off by the annual allowance of £9,000 and assume you need a massive lump sum to invest in a JISA.
If you set up a direct debit to come out of your account on pay day and go directly into the Junior ISA, you’ll never forget, and you’ll build up a nest egg without really noticing.
You can save as little as £25 a month, but the average regular saving into an HL JISA is £84 a month. If you contributed £84 a month for 18 years, and your investments returned long-term growth of 5% a year, you could build up £29,333.
The earlier you start, the more it will be worth
The earlier you start putting money into an ISA, the more opportunity it has to grow. The early years of parenting are expensive, so a JISA may be a step too far. If this is the case, it’s worth checking with family and friends. Often grandparents will want to help, and if they put lump sums or regular payments into a JISA, it can make a major difference. Anyone can pay into a child’s JISA.
Use our JISA calculator to see how much your children could have when they turn 18 based on starting earlier.
It’s important to remember that investments can go up as well as down so past performance is no indication of future performance.
Investing can make you more than saving
Of the 1.25 million JISAs paid into during 2022/23, almost two thirds of them were cash accounts. Given that you will be holding this for up to 18 years, investment offers far more potential growth than cash, so most people need to consider investing.
It’s not just about growth though. One of the best ways to teach children about investment is to invest their JISA, and show them where their money is, and how it is growing. One way to engage children is to put some of their investments in companies they will be naturally interested in.
The top 20 shares in a JISA at hargreaves Lansdown include Tesla, Amazon and Dr Martens, and having even a very small holding in a brand they care about can help children engage with their JISA.
You can invest in lots of different things
It’s always a good idea to spread investments across asset classes and regions. Some people do it by holding a number of passive funds in different asset classes and regions, and there are plenty of these among the most popular JISA funds. Others invest with a number of active managers who make decisions about where to spread the risks, and those make the list too.
When you are investing for the long term, there’s also an opportunity to consider diversifying into areas that balance the likelihood of more volatility with the potential for better returns over the long term.
The most popular funds in a JISA include technology funds, adventurous mixed asset funds and an India fund, so clearly there’s room for these kinds of things in a diverse portfolio too.
There are now free ISA investing accounts
Fees will eat into your investment returns, so it’s worth considering the fees you pay – not just on funds but on platforms too. You can get a JISA without a platform fee, so you need to consider carefully why you’d want to choose one that charges.
Hargreaves Lansdown has removed all their fees from it’s HL Junior ISA account so you can now get more from your investments.
Your children will become better at managing their money
When that JISA matures, it isn’t game over. The vast majority of HL JISA clients still have money invested, and around a quarter have topped up. Some will also want to transfer money into a Lifetime ISA, so they benefit from the government bonus and can take a first step towards owning a property of their own.
Teenagers can use their JISA to start a lifetime of investing, which has the power to add significantly to their financial resilience throughout their life.
By making sure your children have money, means that they will spend more time thinking about it.
One word of warning though! The major difference between an investment ISA versus a cash ISA is that whilst stocks and shares have the potential to make more money, you can also end up with less than you originally put in if you make poor investment decisions.
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as The Sunday Times, BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
You can contact Richard at richard@goodmoneyguide.com
