It is every parent’s natural instinct to want to support their child and opening a Junior ISA can be a great way of doing so. With the increasing costs of living, housing expense and university fees, even the smallest amount could give them a helping hand as they reach adulthood.
Putting a little money aside over a long time can help build a nice lump sum if the value rises over time.
So what are the five things you need to consider before opening a Junior ISA for your child?
1. Which type of Junior ISA is right for your family?
When putting money aside for the future, some people just stick it into a savings account because they don’t want to lose any money. This makes sense but the right decision is a bit more complicated, particularly if you are putting money away for a long time such as with a Junior ISA or a pension.
There are two types of Junior ISA: “cash” and “stocks & shares”.
Although cash JISAs give certainty (you know that the savings will grow by the interest rate), one thing to think about is the effect of the inflation rate on the value of your child’s savings. If inflation (the general increase in cost each year of goods and services) is higher than the interest rate, then despite the fact your savings have grown, they will be able to buy less with the money than they could at the start.
Unlike saving where your returns are dependent on the interest rate, returns from investing depend on how well the investments do. There is of course a risk that you could end up with less than you put in but evidence suggests that, over the long term stocks and shares tend to outperform cash as the returns can compensate for the ups and downs.
Apart from exceptional circumstances, such as the sad death or terminal illness of a child, withdrawals are not permitted until the child is 18, so you may want to split your child’s “nest-egg” between a cash and a stocks & shares JISA and take advantage of the fact that a child is allowed one of each type.
2. How easy is it to manage?
We know from speaking with lots families that managing their children’s savings can be both confusing and difficult. You can never find the paperwork and you even have to go into the bank branch to manage it. Why can’t they be more like the mobile banking apps you use for your own savings and investments?
Well, there is a new breed of Junior ISAs such as Beanstalk which do just this. You can open a Junior ISA in just a couple of minutes on your smartphone. You can manage all your children’s accounts (and your own ISA!), with easy access to all your documents online, and decide how to split contributions between all within the one Beanstalk App.
3. Do you want to commit to regular payments, or have flexibly in how and when you pay in?
Opening a Junior ISA can seem like a big commitment, especially if the provider insists that you have to make a regular contribution every month.
What if your circumstances change? You need flexibility.
Beanstalk lets you open an account without making a contribution and then top up when and if you want to. And you can even contribute in multiple ways, including round up your purchases, a simple one-off / regular top-up process and free money back on your shopping.
Over half % of Beanstalk JISAs use ad hoc and flexible contributions such as top-ups, roundups and KidStart, so we know this uniquely flexible approach to family saving makes a real difference.
4. Can my child’s grandparents also pay into the Junior ISA?
While only the child’s parent or legal guardian can open a Junior ISA, it doesn’t mean they’re the only ones who want to make contributions. However, unlike Beanstalk, not all providers make it easy for family and friends to pay money in.
Our experience is that grandparents in particular want to help out and the right JISA can simplify this.
So if you’re a grandparent, you’ll need to ask the parent to open the JISA account – and with Beanstalk all they do then is invite you via the Beanstalk app and you can contribute in exactly the same variety of ways. We believe long-term child savings can and should be something the whole family can play a part in; today many Beanstalk JISA accounts are ‘family-sourcing’ contributions!
5. What are the costs?
Fees can and do vary enormously between Junior ISAs – and even more so between JISAs and any Child Trust Fund (CTF) account your children may already have.
If your child has a CTF, you may be paying as much as 1.5% in fees. This was the ‘fee cap’ imposed by the government back in 2005 when CTFs were introduced. But fast forward to 2021 and many Junior ISAs have much lower fees. This means that children with CTF investments still paying 1.5% could be paying twice as much or more in fees compared to some Junior ISA alternatives.
To see how much your child can save in fees on their own Child Trust Fund, we’ve built a CTF Calculator, a simple online tool that lets you calculate how much they can save in fees simply by transferring an existing Child Trust Fund across to a Junior ISA with Beanstalk.
Beanstalk is a fintech app aimed at helping parents and families build their long-term child savings. The Beanstalk app is available for download for Apple and Android devices.
You can read our full introduction to Junior ISAs here: https://beanstalkapp.co.uk/guides/jisa-guide