Hard to see far into the future given the current coronavirus crisis, there being less spare money available for investments, yet it would also be hard to overlook one of the best deals currently available – a Junior ISA (JISA).
The tax-free allowance recently jumped from £4,368 a year to £9,000 – not to be sneezed at.
Indeed, if you can pump in regular amounts, come 18 the child will hopefully offer his or her heartfelt thanks.
There will be a tidy sum available, be it for a wedding, first house, trip round the world, further education, or something else.
More is the pity then that JISAs are so under-used.
While HM Revenue & Customs figures for the 2017-18 tax year, the latest available, show that 907,000 were opened – 636,000 cash and 271,000 stocks and shares – on average they had just £994 in them, split between £1,420 for the stocks and shares version to £813 for cash.
They are popular with parents. It is a way of kick-starting their children’s saving habit.
The modern piggy bank.
Yet better-off parents who can afford to maximise JISAs, salting away £750 a month, can build up a large pot by the time their child turns adult.
Based on the best rate available, Coventry Building Society’s 3.6 per cent – though that will reduce to 2.95 per cent from May 6 – This Is Money’s compound interest calculator claims the ultimate return could be an astonishing £227,465.
JISAs are popular with providers too – it is about capturing them young.
At the Coventry, cited by This Is Money, four in five of its JISA savers stick with it when they reach the age of majority.
Hence, as a kind of loss leader, you get better interest on JISAs than adult ones.
Others worth looking at are Darlington Building Society, National Savings & Investments, Santander and Tesco Bank.
Accounts can generally be opened by post, by phone or in branch.
Fidelity International notes: “It’s a flexible and tax-efficient way to save with no income or capital gains tax payable on any returns.
“Anyone can contribute to a child’s JISA. So, as well as you being able to save into the JISA for your child, friends and family can contribute too. Christmas and birthday money can all be added over the years, as long as the total amount saved in any year is within the annual tax-free limit.
“When your child reaches the age of 18, the JISA is automatically converted into a regular ISA, so your now fully-fledged adult son or daughter can continue saving tax-efficiently for whatever they may need.”
It adds: “One less widely-known perk of holding a Junior ISA is that between the age of 16 and 18 your teenage child can also open a regular cash ISA and contribute to that, in addition to whatever has been added to their JISA over those two years. That gives them the unique ability to save an additional £20,000 in the 2020/21 tax year; giving them a bigger tax-free savings allowance than any other group – with a total allowance of £29,000.”
Where cash and stocks and shares Junior ISAs are opened on behalf of the child the tax-free savings allowance is split across both accounts, meaning a parent could save £4,500 in each, or some variant thereof.
Providers of stocks and shares JISAs include investment platforms AJ Bell and Fidelity, as well as high street banks NatWest and Santander. However, be warned, these Isas are not free, as there is both a charge for the platform you use to invest, and a charge incurred on the investments you hold.