Last September saw tuition fees increase nearly threefold for those heading into Higher Education, and if you add to that the effects of rising costs of living and accommodation – an average student is facing a debt of over £50,000 in the space of three years for the privilege.

According to investment specialists, Hargreaves Lansdown, a child born in 2013 will face debt levels of around £100,000 for university, once inflation at 3% is taken into consideration.

If the interest being charged is at 6% then this debt level increases to around £216,000, if the student takes 30 years to pay it off at £600 a month.

This sort of compound interest on debt can cripple a young person’s ability get on to the property market, or save for a financial goal.

1 November saw the first anniversary of the launch of the Junior ISA (JISA), this Government’s flagship children’s savings scheme and replacement for the previous governments’ Child Trust Fund (CTF).

Despite 6 million children instantly qualifying for JISAs, recent figures from HMRC show that the take up falls far short of expectations, with around 72,000 accounts having been opened. But with some parents getting their child benefit axed, are Junior Isas too good to pass up?

Jason Hollands, managing Director at Bestinvest, says: “Young people are increasingly starting adult life with significant financial burdens on their shoulders.

“It is estimated that the average cost of a university degree for someone starting a course this year could be in the region of £50k while getting a foot on the property ladder now entails accumulating a substantial deposit.

“Parents who are in a position to do so should therefore start saving for their children at the earliest opportunity. In this respect Junior ISAs should firmly be on their radar if their children don’t already hold a Child Trust Fund.”

JISAs are attractive for a number of reasons, not only are they tax-efficient but once the child reaches 18, it is possible to tip the investments in the JISA into a regular ISA, where they could remain tax-free for life.

This is a good way of giving a child a head start in life and could also alleviate any financial pressure for the parents in the future.

JISAs do avoid many of the tax issues of traditional adult investments, but there are some limitations. In a tax year, a parent can only put away £3.600, in either cash or stocks/shares Isa and that is only providing that they have not already got a Child Trust Fund.

Once the money is locked in, it cannot be taken out until the child reaches 18, only then can it be withdrawn. Even then, the child can have access to it instantly and the parents will not have a right to say whether that should be the case or not.

Holland believes that as children rarely have annual incomes higher than the personal allowance threshold, currently at £8,105, it is only when the child reaches 18 that the effects of the JISA become more apparent.

Holland said: “In most cases the tax benefits of a Junior ISA are going to be theoretical until the child becomes a working adult and the accrued fund converts into an adult ISA. This means it is particularly important to keep the costs down so they do not outweigh the tax benefits.”

Despite this, JISAs are an attractive way to put money away for a child’s future.

According to Hargreaves Lansdown, based on a £300 per month saving from birth to age 18, parents and grandparents could provide a tax-free lump sum of £103,000 at age 18 to help meet university costs (based on a 5% growth rate).

It is easy to see why the Junior ISA is being seen as the new US style “college fund”.

Even if a parent cannot afford to pay in the maximum amount each year, a JISA is still worth putting money into. If a parent puts aside £50 a month, this amount could grow to nearly £15,000 after 18 years at 3% interest.

But take note that the actual final amount will depend on a number of factors, including the size of the contributions and the type of Junior ISA taken out.

Tom Stevenson, investment director at Fidelity Worldwide Investment, says: “Wherever parents and children decide to invest they are right to do it within the shelter of a Junior ISA.

“Young people have the greatest opportunity to benefit from the long-term performance of stock markets and doing so in a tax-efficient way stacks the odds in favour of a good outcome.”

Steveson continued: “As children grow up in a world in which they can expect to live longer than previous generations and in which employers and governments are increasingly putting the onus on them to prepare for their own financial security, they need all the help we can give them to get into the savings habit at an early age.”

Fidelity says that one of the great points of a Junior ISA is that it is intended to be a very long-term investment.

As JISAs are long term investments, parents should consider higher risk funds – and in particular, generally equities over fixed income, as historically over a longer time frame, the former substantially outperforms the latter.

Top 5 Junior ISAs 
Based on £3,600

6% interest available if the adult registered contact holds a Halifax Cash ISA with a minimum balance of £1. A rate of 3% will apply to non Halifax ISA customers. Sourced by www.moneysupermarket.com 21.02.2013