Why the Junior ISA is an ideal gift for the kids this Christmas

As we countdown to Christmas, many of us start to feel the pinch. Come January we’re wishing we’d saved a bit more to cover the next month (or months) – whether it’s for the unexpected or a specific life event, or just the cost of daily living. We tend to overspend at Christmas, often leaving us to struggle with other things we need to pay for.

Like the Ghost of Christmas Yet to Come, you can foresee the same for your children as they grow up – and the future holds many more financial difficulties for the next generation. Setting them up with a savings account is a great way to help your children build healthy savings habits that will support them in the future.

A Junior ISA lets you save and invest on behalf of a child under 18. Savings are tax free and you can save up to £4,260 per tax year for each of your children.

Here are a few things to know about the Junior ISA

• A child’s parent or legal guardian must open the Junior ISA account on their behalf, although anyone can contribute

• The Junior ISA limit is £4,260 for new contributions for the tax year 2018-19

• No tax is payable on interest, capital growth or dividends

• When your child turns 18, their account is automatically rolled over into an adult ISA. They can choose to take the money to support things like driving lessons, further education or continue to save and invest for their future

If you had saved £50 a month for your child over the last 18 years, you could have saved:

• £10,650 without interest

• £12,040* by investing in a Junior Cash ISA

• £18,626** by investing in a Junior Investment ISA

If you had saved the full ISA allowance for each year for 18 years, you could have saved:

• £76,680 without interest

• £85,487* with a Junior Cash ISA

• £132,247** with a Junior Investment ISA

Remember, investments can go down as well as up, so you may get back less than you put in. As a rule of thumb, you should invest for at least 5 years in order to ride out the inevitable ups and downs of the stock market. It's also important to diversify, which means investing across a range of different funds so that you don't have all your eggs in one basket. Our ready made CushonMix portfolios do this for you automatically.

*Based on historic performance from April 2000 to April 2018 – Cash modelled via BlackRock Cash D Acc.

**Based on historic performance from April 2000 to April 2018 – FTSE 100 modelled via HSBC FTSE 100 Index C Acc.

Junior Investment ISA

We offer Junior Investment ISAs. You choose the funds you want to invest in using our comparison tables, made up of over 1,000 funds and 90 fund managers; or we provide readymade portfolios based on your risk appetite. Portfolios can be spread over a range of different fund managers to control investment risk, keep costs low, and allow for potentially higher returns in the long run over cash savings alternatives.

This year, in the spirit of giving, consider the gift of saving for your children. The Ghost of Christmas Future will thank you for it!

Article by

NatWest Cushon