Saving for your children’s future has never been more important. With the increase in tuition fees hitting this year’s freshers, the cost of University in the future is starting to become clear. And with so many young people struggling to get on the property ladder, it’s never been clearer the need to put some kind of savings plan in place for your kids. For those children born after 2nd January 2011, a junior ISA seems like the ideal option.
But, with so many junior ISA providers on the market, all offering different products; which do you choose? Here’s a quick guide to choosing the right junior ISA.
What is a junior ISA?
A junior ISA as provided by Sippdeal, is an individual savings account, specifically for children, offering various tax advantages. They can be opened on behalf of children born after the above date, who fall into one of the following categories:
- They are under 18
- They live in the UK; and
- They don’t have a Child Trust Fund account already in their name
As is the case with adult ISAs, there is a yearly ISA allowance, able to be paid in each year. For junior ISAs this is £3,600 each year, which can’t be carried over into the next year.
The ISA is opened on behalf of your child, but it is in their name and able to be drawn by them once they reach 18. Anyone is able to pay into the ISA making it an ideal savings vehicle if friends and family members want to make a contribution for the future.
What are the different types of junior ISAs?
There are two types of junior ISAs; cash and investment. Both have their pros and cons, so the decision is really up to you.
Here’s a quick rundown of the factors that should form the basis of your decision.
If you’re looking for safety, then a cash ISA is the best way to go. As long as your funds are placed with a reputable financial institution like Sippdeal, you’ll know the balance of the future nest egg isn’t going to fall. Interest rates aren’t always high, but you’ll know that whatever you put in will be there when they turn 18; plus whatever you make in interest.
However, the downside of this is that if the rate of inflation increases at a faster pace than the interest rate you could actually end up losing out; despite the increase in the savings.
The chance to really make their future
The second option; an investment ISA enables you to gain a significant return on your investment. By using the tax efficient savings wrapper of an ISA to invest in stocks and shares wisely you can build a large nest egg for your child’s future. However, as is always the case with any kind of investment there is a risk. Not only could you potentially lose out on any benefits of the investment, you could lose the original investment too. Choosing an investment junior ISA requires a little financial knowledge and advice; if you do it properly however, it could well be the right decision.