The best way to make your CHILDREN’S SAVINGS grow while they do

Putting money into shares for them can produce a third more than if you stick to cash. So why aren’t more parents taking advantage?

YOUNG savers are losing out on thousands of pounds because of a failure to invest for their future, it is warned today. Investment experts are calling on the regulator and the industry to act now to ensure children get the most out of their savings.

The Financial Conduct Authority (FCA) already warns that pension savers should not leave their nest eggs sitting in poor paying cash accounts.

Yet millions of pounds is languishing in ordinary child savings accounts — most of which pay well below inflation and as little as 0.05 pc.

Experts also say that, while the stock market has been hit badly by the virus crisis this year, history has shown it always bounces back.

Junior Isas (Jisas) were launched in 2011, and offer a valuable tax-free wrapper to families who want to build up a nest egg for youngsters.

The money can be put into stocks and shares or cash. It is then locked away until the child reaches 18 (though children can start managing their account on their own from 16) and any earnings will not be taxed.

Figures released last week by HMRC show that 70 pc of parents are still choosing cash Jisas over the stock market.

Chancellor Rishi Sunak this year more than doubled the annual limit parents can pay into a Jisa from £4,368 to £9,000. It is hoped the move will encourage families to put more money aside for children who would benefit from a fund to help with university or a helping hand on to the property ladder.

But Scottish Friendly wants to see the industry and the FCA do more to encourage parents to invest, as figures show that families who do end up with a pot nearly a third larger than those who stick to cash.

Analysis by the mutual today reveals that mothers and fathers spend more than four times as much money on cakes and biscuits than they invest for their children.

The data from the Office for National Statistics shows that the UK’s eight million households with children spent a combined total of £1.6 billion on sugary treats in the 2017/18 financial year.

By comparison, Treasury figures from the same year show parents invested just £387.8 million into investment Junior Isas.

ASURvEY for Scottish Friendly also shows that just 6pc of parents and grandparents saving for a child are using a stocks and shares Jisa — compared to 27 pc who have a cash Jisa. Some 37 pc use an ordinary savings account, and 26 pc use a current account.

It comes as rates on cash savings have been in freefall. The average cash Junior Isa now pays just 2.06pc — down from 2.46 pc last year.

Rates on ordinary child savings accounts have fallen even further after the Bank of England slashed the base rate to all-time low of 0.1 pc.

Neil Lovatt, Scottish Friendly’s commercial director, says there should be more warnings for parents against leaving savings in a cash account for long periods of time.

He says: ‘What is most concerning is that people are continuing to choose cash over investments for their children’s long-term futures.

‘The FCA has already set out rules to warn those choosing cash as a long-term investment for adults, but there are no equivalent warnings on what I would describe as a looming market failure when it comes to savings for children. It is the sort of thing the regulator should be alive to and trying to point people in the right direction.’

Jisa cash rates currently range between 1 pc and 3.25 pc.

Sums from investment broker AJ Bell show that, assuming an average rate of 2.25pc, parents who saved £100 every month for 18 years would be left with a fund worth £26,862.

But parents who invested the same amount in a stocks and shares Jisa — and achieved an average annual return of 5 pc after charges — would have a fund worth £35,447 instead — 32 pc more.

Tom Selby, senior analyst at AJ Bell, says: ‘Given the FCA is clearly focused on nudging people away from cash in the retirement market, it would make sense for the regulator to turn its focus to the Junior Isa market as well.’ The first UK investor to make a million with Isas, Lord Lee of Trafford, is also backing the call.

He says: ‘UK Isas are probably the most attractive tax-free opportunity in the Western world and all the historical evidence shows that stocks and shares Isas beat cash Isas hands down, certainly over any reasonable length of time.’ b.wilkinson@dailymail.co.uk