Junior ISAs have just celebrated their first birthday. While ISAs (or investment savings accounts) for over 16s have been around for ages - offering tax incentives for savers - those for children are a relatively new concept.
While November may have marked the first anniversary, it was September which noted the real need for savings for our children to be in place as soon as possible. With this year’s intake of first year students the first to be paying the new level of university tuition fees, the cost of further education is rising and rising. With tuition fees now at an average of £8,3931, this only looks set to get higher further down the line.
So, it looks like junior ISAs have come around at the right time. But what is the best option for you? With so many junior ISA providers out there, offering both cash and investment sometimes it can sometimes feel like a minefield.
But we’re here to help. These are the issues you should be considering.
Cash junior ISAs
Opting for a cash junior ISA is a safe option, as you’ll know exactly what you’ll get on your return. Each tax year, you can pay a total of £3,600 into the junior ISA. You’ll know what your interest will be during the term of the ISA, so you’ll know exactly what you’ll get out of it.
However, with interest rates currently low this may not be all it’s cracked up to be. For example, if you save £100 now, you want to be able to buy the same things for £100 a few years down the line as you can now. With the current rate of inflation, set at 2.2%2 and interest rates low, this doesn’t look possible. You may need something a little extra on the top.
Investment junior ISAs
If you’re locking money away for a specific duration, as is the case with a junior ISA, it’s likely that your money will perform better by being invested in stocks and shares. Also, while the economy is struggling, share prices are low in many sectors meaning if you buy now, you could see significant improvements down the line. To build savings for the long term, investment is often a good option.
An investment junior ISA gives you the platform to do just that, but it isn’t without its risks. As is the case with any kind of investment, they can go down as well as up; which could lead to you coming out with less than you actually put in. However, most providers will place an investment fund manager on your behalf you will make all the important decisions when it comes to where your money is invested. If it’s done well, you could put your child in a great position for the future.
Opening a junior ISA
If you’re thinking about it, but haven’t yet done so, there’s no time like the present. You get the specific allowance each tax year, but can’t carry it over. So you’ve only got a few months to get this year’s allowance paid in.
It’s time to start planning for their future.
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1. Applying to University – How to beat the student wallet woes (Guardian 2012) http://www.guardian.co.uk/education/2012/may/22/appyling-university-fees-living-costs-funding
2. Consumer Price Index, as of 16th October 2012 http://www.ons.gov.uk/ons/rel/cpi/consumer-price-indices/september-2012/index.html