GREAT START

A JUNIOR ISA WILL HELP ENSURE YOUR CHILD’S FINANCES GET OFF TO A...

ALL of us want to give our children the best start in life, but it can be hard to find the money to put away when they are young, in order to pay for their future university fees, a first house deposit or other expenses.

The earlier you start putting money away for children, the more of an impact you can have. You can make even more of an impact by putting the money into a tax-free Junior Isa.

Cash or shares?

Nearly three quarters (70 per cent) of Junior Isas are in cash. However, Sarah Coles, at investment site Hargreaves Lansdown, says that because you are saving for a long time into a Junior Isa – 18 years – you may wish to consider putting the money into investments instead. The largest historic study on the performance of various assets shows that over most longer time periods investments tend to outperform cash savings. ‘While the value of your investments will rise and fall in the short term, a Jisa is for the long-term of up to 18 years, so usually there’s time to ride this out and take advantage of long-term growth,’ she says.

If you want a stocks and shares Junior Isa then they are offered by many DIY fund platforms such as AJ Bell, Hargreaves Lansdown and interactive investor. These platforms allow you to pick your own funds or individual shares within your Junior Isa and buy and sell them whenever you like.

Dzmitry Lipski, head of Funds Research at investment platform interactive investor, says that because you are investing over a long time horizon for children you could consider a more adventurous investment strategy, in the hope of better returns.

‘We like F&C Investment Trust as a core holding, which spreads your risk globally in some well known – and less well known – companies. Half of its assets are in the US, with only around 11 per cent in the UK, and top holdings include Amazon, Facebook and Microsoft. It also has a chunk of its assets in private equity. Investors looking to invest along ethical lines could consider Montanaro Better World Fund, or BMO Sustainable Universal Growth,’ he says.

You could also consider a Junior Isa from a so-called ‘robo adviser’, a website that manages funds for you in a relatively cheap way using computer algorithms. Nutmeg, Wealthify and WealthSimple all offer this option.

Whatever you choose, you can transfer it to another provider whenever you like, so it is sensible to keep an eye on your investment or savings performance to check you are happy with it.

It is also worth preparing your child to be given the money at the age of 18, when they are entitled to spend it as they please.

‘Parents who invest in a child trust fund or Jisa are laying a great foundation for their future, but parents can find it difficult watching their children planning to spend hard-earned savings differently from how they themselves might have hoped,’ says Svenja Keller, head of wealth planning at Killik & Co. ‘When children turn 18 and can access their savings, they need guidance on how to spend wisely.’