Kids need fair shares
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PUTTING money aside for your children or grandchildren’s future is more important than ever, yet too many families are failing to take full advantage of the tax-free savings opportunities out there.
Last year, more than a million invested in Junior Isas, the highest figure since they were launched in 2011, contributing almost £1billion.
Yet investment experts are increasingly concerned because 61 per cent of this went into cash, even though stocks and shares should deliver a higher return.
Jason Hollands, managing director of online investment service Bestinvest, called this disappointing because the real value of money sitting in cash will erode over time, due to inflation.
“Locking up savings for more than a decade in a cash account paying minimal interest may not be the best way of funding future college fees or a house deposit,” he said.
The average cash Isa pays just 0.63 per cent, according to Moneyfacts, well below today’s inflation rate of 1.5 per cent.
You can get more by shopping around. Local building societies tend to pay the best rates, with Bath, Darlington, Dudley and Loughborough paying 2.5 per cent. Coventry and Tesco Bank both pay 2.25 per cent.
Hollands said if inflation increases as
many anticipate, cash could look worse. “Cash isn’t king in a world of rising prices,” he said.
The Junior Isa limit is now worth £9,000, and this gives families the opportunity to build serious wealth for children and grandchildren, said Heather Owen, financial expert at wealth manager Quilter: “They allow wealth to trickle down the generations.”
If family and friends invest the full £9,000 each year for 18 years, their child could start adult life with around £250,000, she said.
This assumes the money is invested in shares and grows at an annual rate of 5 per cent a year, with charges of 1 per cent. They could of course get less if shares underperform.
Owen said that many people still do not realise the power of investing in the stock market: “Last year’s volatility has scared many off.”
Investment fund platforms AJ Bell, Bestinvest, Fidelity, Hargreaves Lansdown, Interactive Investor, Nutmeg, Scottish Friendly and Vanguard offer competitive Junior stocks and shares Isas.
Hargreaves Lansdown’s personal finance analyst Sarah Coles said that too many families are also failing to take advantage of the scheme’s predecessor, the Child Trust Fund (CTF).
Some 6.3 million children have CTFS worth £9.2billion in total, with the average holding £1,500.
However much of this is languishing in overpriced, underperforming accounts.
Coles recommended converting CTFS into a Junior Isa, which offer more competitive rates on cash, and a much wider choice of stock market funds, with lower charges.
CTFS were launched in 2005 but applied to all children born between September 1, 2002 and January 1, 2011.
Originally, each child received a voucher worth £250 (£500 for those from lower income families), with a further top-up at age seven.these were scaled back in August 2010.
Some 1.8 million children whose parents did not set up a CTF still have access to one, plus growth on those top-ups.