Using Junior ISAs To Save For Each Child’s Future

*This is a collaborative post 

The sooner you start saving for your child’s future, the better it is for everybody. If you open some sort of savings account for them as soon as they are born and add money to it regularly, you will very quickly build up a nice pot of money. That is cash they can use to build a secure future for themselves. 

For many families, ISAs are a great way to save for their children. But, please bear in mind that I am not a financial advisor. So you will need to do some additional research and maybe consider other options too.

Junior ISAs as a tax-efficient savings vehicle 

For the 2019/20 you can save up to £4,368 in ISAs, per child. This money is free of both income and capital gains tax. There are other advantages too, which you can find out about here.

This is money that belongs to your child from the outset

You need to understand that when you put the cash into this kind of savings account. It cannot be touched until your child is 18. So, you cannot, for example, use it to cover the cost of a family emergency. 

As soon as the money goes into the account it belongs to your child. This is one of the main reasons ISAs are such an efficient way to save for a child’s future. There is no way anyone can give into temptation and dip into that pot of money. 

ISAs enable you to diversify the way you save for your child’s future

There are two kinds of ISAs available. You can open both types for each of your children. But, across the two types of accounts, you cannot exceed the annual savings limit.

Stocks and shares ISAs for children

Historically, in the long-term, stocks and shares have provided investors with a higher rate of return than pure savings have. However, that is only the case when the right stocks and shares are bought with the funds you put into this kind of ISA. It is important to realize that you can end up losing some of your capital.

Cash ISAs 

With cash ISAs you can guarantee that the money will be available when it is needed. It is also a far more simple way of saving, especially if you get a guaranteed fixed rate deal. 

Cash vs. stocks and shares ISAs

In those circumstances, you can easily work out how much money will be in the account when your child needs to access it. With stocks and shares accounts, you cannot be a hundred percent certain that there will be enough money in the account for something like paying university fees. So if you are saving for something that needs to be paid for at a specific point in your child’s life, like driving lessons, it may make more sense to use cash ISAs instead.

If you would like to learn more about choosing between cash or share stocks and shares ISAs you can do so by clicking here.