Putting money aside for your child’s future is a good idea, but it’s not always an easy thing to do, especially when there’s always a new pair of trainers, or toys to buy! If you’re in a position where you can build up a nest egg for your child, make sure you choose the route that suits their needs. And with time on your side, investing a few pounds here and there could be a well-suited option to boost your child’s financial future.
Invest in a Junior Stocks and Shares ISA
It’s not always well-known, but it’s possible to invest for your child’s future. You can either open a General Investment Account and start putting money aside on their behalf, or you could pay into a Junior Stocks and Shares ISA (Stocks and Shares JISA). If you decide to go for the latter, you can invest up to £9,000 (subject to change) for your child in a tax-efficient way - this is their JISA annual allowance. Put simply, your child gets invested in a range of investments, such as shares and bonds, and the good thing about it is that they don’t need to pay UK tax on any returns they make. That way, they get to keep more of their money.
The other advantage of paying into a Junior Stocks & Shares ISA is that the money belongs exclusively to your child, so nobody, not even you, can dip into their pot. The money is locked away until your child’s 18th birthday, when they gain full control over their savings. Also, at this point, their Junior Stocks and Shares ISA will automatically turn into a Stocks and Shares Adult ISA, giving them the possibility to continue their investment journey.
The key is to start investing early
When you invest for your child, time is typically on your side, so it’s important to make the most of it by starting early. Investing isn’t just about how much you put aside, it’s also about how long you’re willing to invest for. Now could be a good time to take the plunge. So, stop waiting for the ‘perfect’ moment, and start with whatever you can afford, whether it’s £10 or £1,000. The sooner you start investing for your little angel, the longer their money will have to potentially grow and compound (when returns generate further returns). For instance, if you start investing the day your child is born and put £50 a month in a Junior Stocks and Shares ISA, your child could celebrate their 18th birthday with £14,583 in their account1. If you wait a number of years to invest, your child would miss out on potential growth, so don’t delay their investment journey and start investing for their future today.
If you want to calculate projections yourself, check out our ‘Create a Plan’ page.
1: This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £11,420. If markets perform better, your return could be £18,730. Values correct as of 17/06/19.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.