Take more risk with your kids’ savings, parents urged
Of the £582m deposited into Junior ISAs overall in the 2014/2015 tax year, £405m was put into cash ISAs, according to the UK’s biggest fund platform.
It said 365,000 cash ISAs were opened during this period compared to 145,000 stocks and shares ISAs.
Hargreaves Lansdown said parents can achieve better longer term returns by investing in the stockmarket.
“For the majority of Junior ISA investors, cash is simply the wrong choice and parents and grandparents should be looking to a stocks and shares Junior ISA to improve the potential returns,” said Danny Cox, head of advice at the firm.
“Investing for new-born children or grandchildren is the most popular time, with nearly 30 per cent of HL Junior ISAs being set up before the child reaches their first birthday. Sensibly these parents and grandparents are recognising over the longer term a stocks and shares Junior ISA is likely to provide a much better return than a cash Junior ISA.”
Andrew Hagger, director of Moneycomms.co.uk, said the findings were “unsurprising.”
“Stocks & shares have, historically, always outperformed cash so if you’re looking to invest money for longer than five years, a cash ISA isn’t the best bet,” he said.
“The only thing to bear in mind is that it’ll be quite a bumpy ride, given market volatility.”
Hagger believes the traditional risk exposure principles that apply to pensions also apply to Junior ISAs. As a young person approaches the age at which they access their ISA, their ISA holdings should increasingly transition towards less risky holdings. The older a child is, the less time they have to recover.
“You wouldn’t want the market to crash six months before your child was due to receive their money, so start moving their ISA into safer stocks or cash a year prior to maturation,” he said.
Children can open a cash as well as a stocks and shares Junior ISA account, but can only hold one of each type at any one time.
They can also invest £15,240 into an adult cash ISA from age 16.