‘Invest today!’ Children can save £265,000 by their 18th birthday thanks to Junior ISAs

Martin Lewis lays out the best savings deals available

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Back in November 2011, Junior ISAs were launched to allow families to invest money for their children tax-free. However with this particular savings product, the money put into a Junior ISA is locked away until the child reaches 18 years of age. At this point, the child whose name is under the account can take the money or choose to invest even further.

Families have the choice to invest in either cash or stocks-and-shares, with many choosing the latter due to its investment benefits.

Latest figures suggest over one million people across the UK took out a Junior ISA account during the 2019/20 tax year.

Some 706,000 of those who choose to get this particular ISA invested in cash compared to the 316,000 who opted for stocks-and-shares.

Currently, the best Junior Cash ISA rate is 2.5 percent. If this rate continued, account holders would see a return of 28 percent over the next decade with interest paid annually.

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The average family who invested £1,000 at the beginning of this 10-year period, at 2.5 percent annually, would see the money grow to £1,280.

However, according to Laura Suter, head of personal finance at AJ Bell, if the rate doubled to five percent, the amount someone could end up with would be much larger.

Ms Suter said: “Many things haven’t changed in the past 10 years since the Junior ISA was launched – back in 2011 Adele was topping the charts, Kim Kardashian was getting divorced and we were all experiencing rising inflation and continual talk of an interest rate hike.

“However, parents who were savvy enough to use a Junior ISA to start a savings pot for their children could have built up almost £75,000 for their child during that decade.

“One thing that has changed dramatically is the amount you can put away in your child’s Junior ISA each year, rising from the original £3,600 to £9,000 today.

“It means that parents with money to spare can build up a very sizeable pot for their kids by the time they reach their 18th birthday.

“For a child born today, if you put away the full £9,000 a year and assume five percent growth, you could have more than £265,000 by their 18th birthday – definitely a birthday gift your child will thank you for.

“Despite now being a decade old the popularity of Junior ISAs hasn’t waned. Contributions to JISAs have increased in popularity in the past couple of years – the pandemic means that some parents have found themselves with more spare money that they’ve decided to stash away for their kids.”

Chris Hood, an investment expert at financial advisers NFU Mutual, outlined why Junior ISAs are the perfect way for families to begin their child’s saving and investment journey.

Mr Hood explained: “The majority of families play it safe when it comes to investing for children and keep the money in cash savings, but families who invested their Junior ISAs in stocks and shares are likely to have made significantly better returns.

“Junior ISAs are locked away until the child turns 18, enabling families to benefit from the longer-term potential of the stock market. However, 70 percent of Junior ISAs were invested in cash in 2019/20.

“When money is locked away for such a long time, it can weather the bumps in the stock market.

“Not only does this approach have the potential to have a positive impact on the child financially, it can also teach valuable lessons to children that help them understand the benefits of long-term investing.”

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