Tapping into junior ISAs to improve your child’s future | #CP

With kids, the sooner you start saving for their futures the better it is for everyone. If you open some sort of savings account for them when they are born and regularly add money to it you will soon have a nice pot of money put by. This is cash that can be used to secure their future. For example, if they want to go to university, they will have most of the funds they need to do so already saved up.

The Wealthify junior ISA is one of several products that can help you to do this. ISAs work really well for a lot of families. But, it is important to fully understand how they work, before opening one.

Below are the headline facts. I am not a financial advisor, so please do some additional research before using ISAs for your kids.

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Junior ISAs are a tax-efficient investment vehicle

At the time of my writing this, junior ISAs were a tax-efficient way to save for your child’s future. Each year, for each child, you can save up to £4,368. Any income or capital gains are tax-free. The money you put into a junior ISA is not part of your tax wrapper.

The money belongs to your child

The money that you put into a Junior ISA, whether it be used to buy shares or left as cash what is in the ISA belongs to your child. But, they cannot access it until they are 18, except under exceptional circumstances. They can, however, start to manage their account from the age of 16.

Importantly, nobody else can access that money either. So, an ISA is a way to all but guarantee that your child will have a pot of money available at a very important stage in their lives.

You can diversify the way you save for your child’s future

There are 2 kinds of ISAs. Cash and stocks and shares ISAs. You can open both types of accounts for each child. But, you cannot go over the annual saving limit of £4,368 for each of your children.

So, using ISAs enables you to diversify the way you save for your child. The cash ISA accrues interest. If you sign up for a fixed-rate deal, for that year, regardless of what happens to the economy you get that rate. So, that is a very low-risk way of growing your child’s savings without having to contribute more cash to the pot.

Use their ISA to teach your children about the value of saving

Just because you child cannot touch their money does not mean that they should not be involved in the management of that cash. Once your child is old enough, you could sit down with them and discuss whether that years savings should go into a stocks and shares ISA or a cash one. At 16, they can take administrative control of their ISAs, something you will want to prepare them for. After a few years, of being involved in the management of their money they are far more unlikely to waste the cash when they gain access to it at 18.

But, if you are less risk-averse you could opt to put some or all of that cash into a stocks and shares ISA, instead. You can read more about choosing between cash or share ISAs, by clicking here.

*This post was written in collaboration with a third party, the words expressed are my own"