While living costs remain high and families grapple with children’s Christmas lists, securing a gift that keeps on giving could be more meaningful this year.
Junior ISAs provide an opportunity for parents and legal guardians to give children a head start by investing up to £9,000 a year on their behalf in a tax-efficient way.
According to experts at wealth management firm Moneyfarm, the products can help hedge against high inflation and protect savings from real-time value erosion.
Chris Rudden, head of investment consultants at Moneyfarm said: “A JISA offers a stocking full of future potential because the best gifts are those that last a lifetime.
“It’s the perfect way to give your child a head start whilst ensuring returns are protected from rising inflation levels, as well as from capital gains and income tax.
“And, if you can start early, the power of compounding and a good time in the market can really boost those returns.”
At the same time, Mr Rudden said: “Financial literacy is a vital skill that children should learn from a young age.
“Setting them up with a JISA account is a great way to help your children build healthy savings habits that will support them in the future.”
While the parent or guardian has to be the one to set the account up, anyone can contribute to a JISA – meaning aunties, uncles and grandparents can get involved as well.
But, even starting with small amounts can make a “tangible” difference.
According to Moneyfarm experts, a JISA’s “secret weapon” is what is known as compound interest, which essentially means the interest paid on interest.
This can produce a “snowball effect”, and the earlier parents start to save for a child, the bigger the impact of compound interest.
The JISA can then grow through additional investments, the returns of the portfolio and the compound interest over time, creating a “potentially significant” pot over a child’s first 18 years.
As an example, if a parent saves £50 each month, they could amass up to £17,093 for their child at the end of the 18 years. Once the child turns 18, they can take control of the money through an adult ISA.
For those with larger funds to invest, calculations from the investment platform Bestinvest show a family that invests £9,000 a year in a Junior ISA for 18 years, based on a five percent annual compound growth rate will accumulate a pot of £269,048.
If that money was rolled into an adult ISA at 18 and no more contributions were made, by the age of 44 the balance would have topped £1million.
