Three ways to grow your Junior ISA to £50k
It appears that £50,000 is the magic number for young adults: it equates to the average cost of university debt and a 10% deposit on the average first property in London (totalling £480,000).
So how can parents save the tidy sum of £50,000 on behalf of their kids?
A stocks and shares Junior ISA presents one of the best ways to save money during your child’s early years and should help you to provide them with an impressive 18th birthday present. This is because savings are able to grow tax-free within the Junior ISA wrapper, while withdrawals can also be made free of income tax.
Here, investment platform AJ Bell outlines three ways for parents to reach the £50,000 target using a Junior ISA…
The organised early saver
Parents who remember to open a Junior ISA during the sleep-deprived first months of having a newborn baby will benefit from a longer time period for the pot to gather returns, reducing the amount they need to invest each year.
Someone who opened a Junior ISA in the first year of the child’s life will need to pay in £1,900 a year until they reach the age of 18 to get to the magic £50,000 figure. This assumes 4% growth after charges each year and means the child would end up with a pot of £50,675 on their 18th birthday.
If you have more disposable cash and want to put in the full Junior ISA allowance (which currently stands at £4,260) every year, you will need to contribute the full annual allowance for the first seven years of the child’s life. If you then left the pot to grow and assumed the same 4% growth figures, it will reach £53,870 by the time the child reaches the age of 18.
The school starter
The early years of a child’s life are expensive, from kitting out a nursery to paying for childcare, so many new parents may not be able to find the spare cash to stash in an ISA.
If they start saving when the child starts school, aged 5, they would need to put £2,900 away each year until they reach the age of 18 to have a pot to pay for university.
On the child’s 18th birthday they would have saved £50,147, once again assuming the same 4% growth after charges.
If they started saving at the age of five but wanted to put the full Junior ISA allowance in, they would only need to pay in until the child reaches the age of 13. At this point they would have contributed £34,080, growing to £49,667 by the time they reach their 18th birthday.
The last-minute Larry
What about if you totally forgot to open the Junior ISA, or just haven’t had the spare cash to put money away? Well the good news is that you can start saving when the child is eight, putting in the full £4,260 allocation each year and you would still reach the crucial sum by their 18th birthday. At this point, the pot would total £53,192, assuming 4% annual growth.
This handy table outlines the potential Junior ISA paths available:
|Starting age||Annual investment required||Fund value at age 18|
|The organised early saver||0||£1,900||£50,675|
|The school starter||5||£2,900||£50,147|
|The last-minute Larry||8||£4,260||£53,192|
Source: AJ Bell (assumes 4% growth per annum after charges)
One downside to consider is that the Junior ISA pot will become available to the child from the age of 18, running the risk of it being spent on a holiday of a lifetime. However, figures from AJ Bell’s customers show that only 7% of Junior ISA customers have cashed out on their 18th birthday, so teenagers may prove to be more savvy than you might expect.