Are You Getting the Most Out of Your Child’s Junior ISA? 5 Considerations To Take

As many as 1.37 million Junior ISA accounts were subscribed to for the 2023/24 tax year, according to recently published government figures. 

The strategy, which allows you to save in a cash JISA or invest in a stocks and shares JISA, is a great way to build a nest egg for your child’s future, and parents opt for many different approaches to provide a larger windfall for their loved ones once they can access the funds upon turning 18 years of age. 

But what considerations can you take when using a Junior ISA? Let’s take a deeper look at five of the best measures to support more effective wealth management for your children: 

1. To Save or Invest? 

Because JISAs offer access to both saving and investing, it’s down to you, as the child’s parent or guardian, to decide which approach best suits the interests of your loved one.

There’s no right or wrong answer here, and everybody has different levels of risk tolerance. However, with a Junior ISA serving as a long-term product, it offers a strong time frame for investments to grow over time. 

According to data from Unbiased, over the past 10 years, stocks and shares ISAs have returned an average of 9.64% annually, as opposed to 1.21% for lower-risk cash ISAs. These historical returns underline the greater potential of investing over long periods of time, particularly if you’re opening your child’s JISA when they’re at a young age. 

However, if you choose to invest in a stocks and shares JISA, be aware that there’s no guarantee that your investments will grow over time. 

2. Make the Most of Your Allowance

The annual tax-free allowance for Junior ISAs is £9,000, which is the limit that you can subscribe on behalf of your child to their account each tax year. 

This means that you have a maximum of £9,000 you can save or invest between the 6th of April and the 5th of April each year for them. This is separate to the £20,000 annual allowance that you are entitled to use in your own ISAs as an adult.

The best way to get the most out of your annual allowance is not only to look to get as close as possible to the child’s £9,000 limit but also to contribute as much as you can early in the tax year, allowing you to benefit from a full year of growth to boost the value of your pot as much as possible. 

3. Get Started Early

You can start saving or investing in a Junior ISA as soon as your child is born, and getting started sooner rather than later can be a great way to benefit from compounded earnings, which occur when any profit you’ve made is rolled over to boost the JISA earnings further. 

To help build positive habits around contributing to your child’s JISA, most providers will allow you to set up a regular standing order, enabling you to use pound-cost averaging to find consistency when investing in stocks and shares JISAs. 

4. Always Compare Providers

Things can change over 18 years if you open a Junior ISA when your child is born, and the terms offered by providers can be beaten by rivals over time. 

With this in mind, you should regularly review and compare JISA providers to ensure that you’re getting a competitive interest rate for a cash JISA and a low-cost, well-managed fund for a stocks and shares JISA. 

Because you can transfer your child’s JISA to different providers if you find a better deal, it’s certainly worth checking to see if the grass could be greener elsewhere more regularly. Just remember to check for exit fees.

5. Invite Others to Contribute

One of the best advantages of a Junior ISA is that many providers can facilitate inviting family and friends to contribute. 

It could be worth inviting family and friends to gift money to your child’s JISA for their birthdays or during the festive period. 

Given the potential for compounded returns, even a small gift donated to your child’s JISA today could make a major difference when they turn 18 years old. 

Getting the Most From Your Child’s JISA

Junior ISAs are a great way to build a nest egg for your child’s future, and with the right strategy in place, you can make the most of your £9,000 tax-free annual allowance to build substantial savings or investments. 

With more than 1.37 million parents saving for their children, JISAs are already a highly popular way of building the wealth of your loved ones, and nurturing the growth of accounts by keeping in mind factors like pound-cost averaging and comparing provider terms can foster even greater results when looking to the future.