Is junior growing faster than his Isa portfolio? Then switch now
JUNIOR Individual Savings Accounts (Jisas) are great for building a tax-free nest egg for children. But if your child’s money is languishing in a poor paying account or is being eroded by fund charges, it could be time to move. Here, The Mail on Sunday looks at the options available. OPTION 1: CASH JISAS SAVING in cash is a straightforward way to put money aside for your child’s future.
There are some 40 cash Jisas on the market. With all of them, you can save a maximum £4,080 a year on behalf of a child. This rises to £4,128 from the start of the new tax year in April. The account cannot be accessed until the child reaches age 18, although they can take control of it from the age of 16.
Many cash Jisas pay decent rates, enough to keep pace with inflation.
Among the best buys are Coventry Building Society (3.25 per cent) and Nationwide Building Society, Halifax, Tesco Bank and TSB, all paying three per cent.
But some accounts have been left behind. Anna Bowes, director of website Savingschampion, says: ‘There are cash Jisas which are now more than five years old and the interest rates have dwindled away.’
Bowes says the worst Jisas pay less than one per cent. For example, Newcastle Building Society has one paying 0.55 per cent.
A parent saving £250 a month into a cash Jisa at 3.25 per cent interest would amass more than £74,000 for their child by age 18. The same savings in an account paying 0.55 per cent would build a tax-free sum of £57,000.
Bowes says parents should opt for a top rate account but then monitor it to ensure it remains competitive.
Some cash Jisa providers boost savings rates by including a shortterm bonus. Once this is withdrawn, the account’s attractiveness can fall away. OPTION 2: INVESTMENT JISAS IF PARENTS are prepared to take a bit more risk, an investment-based Jisa may prove a more rewarding option, given that the stock market usually outperforms cash in the long term.
Financial expert Justin Modray, of website candidmoney, says parents should opt for simple, low-cost options such as an investment fund tracking the UK stock market. These i n turn should be bought online via a lowcost funds platform such as Cavendish, Fid Fidelitylit or H Hargreaves Lansdown. For example, the annual charge on a Jisa invested in the Fidelity Index UK Fund – and bought via Fidelity’s platform – would be 0.41 per cent. If the same fund was bought via Cavendish, the overall charge would reduce to 0.31 per cent. Some popular investment Jisas, such as those offered by OneFamily, part of the Family Assurance Friendly Society; Scottish Friendly; and Foresters (The Children’s Mutual), for example, have higher annual charges at 1.5 per cent.
But they have lower minimum entry levels for investors, accepting monthly investments from just £10.
By contrast, Fidelity’s minimum investment is £50 per month or a £500 lump sum. Hargreaves Lansdown has a minimum investment of £25 per month or a £100 lump sum.
You do not have to invest a lot each month to build a healthy investment pot for your child. A parent investing £25 every month into an investment Jisa from their child’s first birthday could build a fund worth £5,500 by age 18, assuming investment performance of four per cent per year and low annual charges. SWITCHING ONCE you have decided to switch a Jisa be careful to follow the necessary steps to the letter of the law, otherwise you could inadvertently lose the tax-free status of your child’s cash.
You can switch at any time. First apply to your new chosen Jisa provider for a transfer form.
This gives the new provider permission to request a transfer of the funds from the existing Jisa manager.
Most Jisa providers will accept such transfers in, as well as money from old-style Child Trust Funds (the precursor to the Jisa). The notable exceptions are Cavendish and Fidelity.
Some companies may insist on a minimum transfer – £500 is typical.
Savings from cash Jisas can be transferred into an investment Jisa and vice-versa.
But children can only hold one cash and one investment Jisa at any time.