Last November, the Junior Individual Savings Account (JISA) celebrated its 5th birthday. In the 2015-16 tax year alone, over £920m was paid into 738,000 accounts, and the average amount saved was £1,248 per account.
JISAs have proved very popular as a means of saving tax-efficiently, not least because once they have been set up by a parent or legal guardian, anyone can then pay into the account. This makes them an ideal way for parents, family members and friends to contribute towards a child’s future. They represent a great way to start a fund for big expenses, such as university fees or the deposit for a home.
Your child can have a Junior cash ISA, a Junior stocks and shares ISA or a mixture of both and save up to a total annual allowance of £4,128 in the 2017-18 tax year.
IS CASH KING?
With a cash JISA you are guaranteed, within the applicable Financial Services Compensation Scheme limit, to get back all the money you have put in – but with interest rates continuing to remain very low, there is a risk that inflation, which has risen in the last few months, will erode the value of the money saved over time. Some financial commentators are predicting that inflation could rise to 3% in 2017. If it does, to keep up with this rise in the cost of living, your cash JISA would need to match this rate.
CONSIDERING STOCKS AND SHARES
If you can lock the money away for a reasonable amount of time – a minimum of five years, for example – it is often better to invest in stocks and shares which historically have offered a better rate of return. Unlike cash, money invested in stocks and shares rises and falls with stock market prices, meaning your investment can go up and down in value. By saving into a JISA on a regular monthly basis, there is the opportunity to smooth out the peaks and troughs in the stock market.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.
The information within the article is purely for information purposes only and does not constitute individual advice.