Junior Isa savings boom
PARENTS are increasingly prioritising saving for their children’s future rather than their own, as figures show the number taking out junior Isas has doubled in the last five years.
While families are struggling due to the costs crisis, investing for children is a priority, said Scottish Friendly’s savings specialist Kevin Brown. “Parents are worried about ensuring their children have a decent springboard for whatever lies ahead.”
Grandparents want to chip in, but they cannot open an account. “It has to be a parent or guardian. Changing rules to let other family members open junior Isas would give children’s savings a much-needed boost.”
The junior Isa – or Jisa – allows family and friends to invest up to £9,000 a year on behalf of under-18s, with all returns free of income tax and capital gains tax. At 18 all the money belongs to the child, who can retain the tax advantages in an adult Isa.
Like the £20,000 adult Isa allowance, the Jisa is issued on a “use it or lose it” basis, so families should use theirs before the annual deadline of midnight April 5 if they can.
The Jisa is more valuable than ever as the tax burden hits a 70-year high, while children face an uncertain financial future, amid student debt, stagnating wages and costly property.
Families can choose a Jisa or Junior stocks and shares Isa. Most opt for cash but the stock market is likely to make their money work harder.
Somebody who invested £100 a month into a stocks and shares Jisa and made an average return of 5 per cent a year for 18 years could end up with a nest egg of £34,920. If they paid the same into a cash Jisa and made 2.5 per cent a year, their nest egg would be £27,244 – £7,676 less.
However, it is possible to get a higher rate today from a Jisa, with Coventry Building Society paying a market-leading rate of 4.95 per cent.
Loughborough Building Society is close behind at 4.80 per cent while Leek, Skipton and Stafford Railway building societies pay 4.75 per cent, according to Moneyfacts. These rates may fall if the Bank of England starts cutting interest rates as expected.
Growth funds and tech stocks are the most popular for parents investing for their children, said Emma Wall, head of investment analysis and research at Hargreaves Lansdown.
“Parents and guardians have been snapping up the investments that have best performed over the past year.”
Fundsmith Equity from star fund manager Terry Smith, which invests in a spread of global shares but with a focus on the US, remains popular, as is Lindsell Train Global Equity, run by fund management team Michael Lindsell and Nick Train.
Legal & General International Index Trust and Legal & General US Index tracker funds are popular, with Rathbone Global Opportunities completing the top five investment fund buys.
Among parents who buy individual stocks, Lloyds Banking Group and Rolls-Royce are in demand, along with Legal & General Group, Apple and Tesla. Rolls-Royce shares soared 225 per cent last year, while Lloyds and L&G yield 6 per cent and 8.39 per cent respectively. The FTSE 100 average yield is 3.9 per cent.