Junior ISAs turn five: how to make the most money for your kids
Last tax year was a record for junior ISAs, with 738,000 opened and £921m subscribed, according to Treasury figures.
Junior ISAs, or JISAs as they’re sometimes known, were launched by the government on 1 November 2011 as long-term, tax-free savings accounts for children, replacing the old Child Trust Fund (more on this below).
Parents and guardians can open a JISA for a child under 16, but anyone can pay money into it as long as the amount doesn’t exceed £4,080 (for the 2016/17 tax year).
JISAs come in two forms – cash and stocks and shares products. With both any earnings are protected from the taxman.
The child can access the money when they turn 18 but they can take control of the account when they’re 16. Once they reach 18, the JISA automatically becomes an adult ISA.
Best cash JISA
According to Moneyfacts, the top paying cash JISA is from Coventry Building Society offering 3.25% gross variable. The minimum investment is £1 and allows transfers in.
Nationwide Building Society, Halifax, TSB, Tesco Bank and Darlington Building Society come in equal second place all offering 3% gross variable. Again, the minimum amount you can deposit is £1 and they all allow transfers in.
According to government figures, around 60% of parents who took out a JISA in 2015/16 chose cash over stocks and shares.
Top JISA fund picks
Analysis suggests even relatively modest amounts invested in a stocks and shares JISA could build into a sizeable nest egg over time.
Figures from F&C Investments estimate that a fully invested stocks and shares JISA opened at launch five years ago could have grown to £34,600 today.
If the product had been available 18 years ago with today’s maximum allowance, F&C estimates a child’s saving pot could have grown to £194,976 if it had been invested in its investment trust. Even a regular saving of £30 could have grown to £16,134 over 18 years.
However, there are huge disparities in the performance of the top 10 best-selling JISA stocks and shares funds.
Research by Morningstar for SavvyWoman.co.uk analysed the performance of the top selling JISA funds over the past five years across five platforms: Chelsea Financial Services, Tilney Bestinvest, Hargreaves Lansdown, The Share Centre and Interactive Investor.
It found Tilney Bestinvest Growth Portfolio Fund is the worst of the top ten selling junior ISA stocks and shares funds returning just over 50% growth in five years, once charges have been taken into account.
Fundsmith Equity comes out top, producing returns of three times that with almost 170% growth over the same period. The recently launched CF Woodford Equity Income fund has been the top seller since launch and has produced a return of over 30% in less than two and a half years.
Top ten best-selling Junior ISA funds listed in descending order by popularity:
- CF Woodford Equity Income – 30.8% (fund launch 20.06.14)
- Fundsmith Equity – 169.67%
- Liontrust Special Situations – 103.75%
- Marlborough UK Micro Cap Growth -121.66%
- Invesco Perpetual High Income -75.33%
- Tilney Bestinvest Growth Portfolio – 50.46%
- Rathbone Global Opportunities – 105.21%
- Lindsell Train Global Equity – 148.59%
- Aberdeen Foundation Growth – 53.77%
- Jupiter Global Managed – 85.20%
- HL Multi Manager Income and Growth – 73.48%
I have a Child Trust Fund, can I open a JISA too?
Child Trust Funds (CTFs) were introduced in 2002 as a way of saving for children but they were replaced by JISAs in 2011. You cannot hold both a JISA and a CTF but you can transfer out of the old scheme into a JISA.
Both schemes have the same maximum investment amount of £4,080 per tax year and the balance becomes the property of the child at the age of 18. But the main problem with a CTF is that the pool of providers offering products is likely to become smaller as providers focus on offering products for JISAs instead. See YourMoney.com’s Should I transfer a Child Trust Fund to a Junior ISA? guide for more information.
Jane Ellison, financial secretary to the Treasury, said: “Junior Isas have made it easier than ever for parents and grandparents to save for their children’s future, and the 730,000 accounts saving £1,248 each on average in the last year alone are testament to their success.”
“We want to help people of all ages and circumstances to save, whether that’s towards a rainy day, university or later life. That’s why, on top of the Junior Isa, we’ve introduced many more ways to save since 2010, including the new Help to Save and Lifetime Isa.”