On first look you may think there isn’t a huge amount of difference between a child’s savings account and a Junior ISA (JISA). In fact, you may find yourself leaning towards the first owing to the fact that it seems more flexible, and you have control of the money for longer (not the child themselves when they turn 18). However, on closer examination this might not be the prudent choice. Furthermore, there are extremely valuable reasons for making the most of your child’s Junior ISA allowance. Here’s why.
Not All Savings Methods Are Created Equal
Set up a savings account in your child’s name and you can gaily stash some cash, earning a reasonable rate of interest. Furthermore, should times become tough – or they really, desperately want to go on that school skiing trip age 14 – you can dip in, and everyone’s happy. Also, if your child perhaps isn’t turning in to the most responsible young person towards the transition period, then you can swiftly take the money back and get it under your control.
However, this all comes with a catch. Firstly, whilst there’s no limit on what can be paid in, there is a limit on the interest they can earn. And this is all a bit complicated. If they earn over £100 per annum in interest on their savings then the money is taxed at the parents’ tax rate. This just doesn’t happen with a Junior ISA.
With a Junior ISA you (and any willing relatives, godparents and friends) can pay in up to the annual JISA limit (currently £4080, rising to £4128 for 2017-2018). Once the money is in the ISA it is then basically tax protected. Permanently. No income tax. No capital gains.
Thinking of the Future
Furthermore, whilst you might think your infants and pre-schoolers are expensive now, that’s nothing to what a rising-adult dependent is. There is a peak at this point in their lives when there are things like university fees, first cars, and first homes to consider. Knowing that there is going to be a good lump of money at that point is important. JISA’s prevent the wayward dipping hand of a regular savings account, and will ring-fence the money until it is truly needed. For Junior ISAs there is no withdrawing any money until 18, except in the case of death or a terminal illness
The Earlier the Better
Thinking of your child as a fully-fledged adult can be hard to do in the early years. However, it’s worth giving this some thought because as far as ISAs (and in particular Junior ISAs) are concerned, the earlier you start saving the better.
Have you thought about how your child will afford the likes of university fees, first cars, and first homes and what the average prices of these might look like in the future?
Shepherds Friendly’s infographic can open your eyes to how much you need to save for your child’s future. It can help you to see how much you may need to save each month and over how many years, based on your specific goals.
Remember, the earlier that you start saving, the more you are likely to be able to save, meaning your child’s investment has more time to grow which could mean much higher lump sum when they reach age 18.
Fear Not, You Haven’t Missed the Boat
It’s not too late to open a Junior ISA for your child. Once you’re up and running with the Shepherds Friendly Junior ISA you will have full flexibility over managing the plan and saving money when it suits you (you can stop, start, and add as much or as little as you like). Therefore, whilst it makes sense to use the full allowance if you can afford it, if you can’t – there are still great features within the plan that allow you to save flexibly.
Those with children aged around 6-15 might be thinking they’ve been scuppered due to the Government-led Child Trust Funds (CTFs). However, those who have a Child Trust Fund can simply move the balance of a CTF into a Junior ISA.
Use It or Lose It
The reality, with Junior ISAs, much like their adult counterparts: If you don’t use the annual allowance you forfeit it. There’s no carrying over. So it makes sense to save as much as you can up to the allowance in each and every tax year, which ends on April 5th.
Make the Most of Your Child’s Junior ISA Allowance
For all the reasons above, get cracking and make the most of your child’s Junior ISA allowance for this year, before April.