Six years of Junior ISAs: three ideas to give your kids a head start in life
The 2016/17 tax year saw a record number of Junior ISA (JISA) accounts opened, 794,000, up from the 738,000 in the previous year.
A total of £858m was subscribed to the products last year with £525m held in cash (61% of the total) and £333m deposited into stocks and shares JISAs.
However the total subscribed has decreased from the record £921m in the 2015/16 tax year and parents are more likely to keep their JISAs in cash. The average amounts in them has also fallen, statistics from HM Revenue & Customs (HMRC) show – by 10% to £926 for cash JISAs and 11% to £1,460 for stocks and shares JISAs.
For parents looking to invest for their child’s future, they can be a rewarding savings option. JISAs are long-term, tax-free savings accounts for children, replacing the old Child Trust Fund. See YourMoney.com’s Should I transfer a Child Trust Fund to a Junior ISA? guide for more information.
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 £4,128 (for the 2017/18 tax year).
JISAs come with two main options – cash, and stocks and shares. With both any income or capital gains 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. This means that it isn’t a great option for those wanting to save for school or university fees, unless the children involved are particularly responsible.
Adrian Lowcock, investment director at Architas, said: “Junior ISAs, which turn 6 on 1 November, are a clear and transparent way to save or invest for your children or grandchildren and can give them an excellent head start in life.
“As investments inside a Junior ISA could be held for the long-term it is also an excellent way to teach children the benefits of investing and saving over the longer period. That way when they turn 18 and take control of the money they should be well placed to appreciate it and use the money wisely.”
Lowcock added that it’s important for parents and guardians to note that the money is your child’s and therefore any investment decisions should be made with their interests in mind.
“While it makes sense to invest in riskier assets, given the investment timescale, this does not mean taking unnecessary risks and protecting any investment is just as important as growing it,” he said.
Three Junior ISA investment ideas
The current best buy cash JISA is offered from the Coventry Building Society offering 3.25%, according to Moneyfacts. While this offering is more attractive than the rates offered on adult products, for parents seeking further returns for their children’s money, you’ll have to tap into the stock market.
Lowcock lists these three investment ideas for a stocks and shares Junior ISA, depending on your attitude to risk:
Cautious: Schroder Global Equity Income – Ian Kelly runs this fund with strong value focus. He screens stocks to focus on particularly neglected areas of the market. The process is strong and repeatable, supported by a team of accountants. The fund is ambivalent to benchmark allocations, a bottom-up stock specific portfolio which relies on sentiment and news flow in order to enter positions at an attractive price point.
Moderate Risk: Lindsell Train Global Equity – The fund is run with a long-term focus on its investment performance. It looks for companies with excellent brands, franchises and unique market positions. Of these it is those which are conservatively financed and are able to produce a high and stable return on capital. The fund is highly concentrated with between 25-30 stocks, of primarily large companies, and trading is very infrequent.
Adventurous: Fidelity Global Special Situations – Jeremy Podger took over management of this fund in 2012. He looks to invest in three types of companies, those that offer exceptional value; companies which are able to grow their earnings above market expectations. These have significant growth potential but are likely to be volatile. This group form around 50% of the portfolio. Secondly he is looking for unique businesses; companies with pricing power and the ability to grow their revenue. Finally companies undergoing corporate change where restructuring or demergers provide limited downside.
Related: See YourMoney.com’s VIDEO: How and why to set up an ISA and/or pension for your child.