Back to school season is well and truly underway, and for many parents, September is often a time to contemplate about the years to come. A new school year is an opportune time to start planning for your child’s financial future.
Putting money aside early on and knowing the best ways to save can ensure that your child starts on the right track for a solid financial future. Many parents choose to save for their children to give them a boost into adulthood once they turn 18, often in the form of regular monthly payments into a savings account or adding money on Christmas and birthdays. But which savings option is the right one for you and for your child?
What is a JISA?
A Junior ISA, known as a JISA, is a long-term, tax-free savings account available for any child under the age of 18 who is living in the UK. For the 2024/25 tax year, the savings limit for a JISA is £9000, and anyone can pay into this. Parents or guardians can open and manage the account, but the money belongs to and can only be withdrawn by the child. Your child is able to take control of the account when they turn 16, but cannot withdraw money until they are 18 years old.
There are two types of JISA available:
- A cash JISA – this is similar to a bank savings account, although the money is locked in until the child turns 18 and there is no tax on interest earnt on savings.
- A stocks and shares JISA – this involves putting savings into investments such as funds, shares and bonds and all gains earnt are tax free.
Pros and cons of a JISA
Pros:
- Savings are protected until the child turns 18 – your child is unable to take money out of the account until they become an adult (legally). Hopefully this will mean that they are more mature and therefore likely to use the money wisely rather than spend it on impulse buys (although this is not guaranteed!)
- JISAs are tax-efficient – your child won’t pay tax on any interest or returns when they take money out of the JISA upon turning 18.
- Anyone can put money into a JISA – even non-family members can contribute to a JISA, meaning it is the perfect way for relatives or family friends to contribute to your child’s future on special occasions or whenever they wish.
- A JISA can be used to reduce inheritance tax liabilities – as your child will not pay tax on their JISA, it can be a good way to give them some of their inheritance early. If there is less money for them to inherit when you die it could reduce the amount of inheritance tax they have to pay, providing you don’t pass away within seven years of giving them the money or it’s within the IHT gift exemption limit of £3,000 per year.
- JISAs are a good way to teach children about savings from an early age – having money in their own name will be a good opportunity to start teaching children the importance of good money management and is a good conversation starter about savings and financial responsibility.
Cons:
- Your money is inaccessible – while this is also a pro to having a JISA, it does mean that even if you or your child have urgent financial needs, the money is locked in until they turn 18.
- Stocks and shares JISAs may lose value – as with all investments, there is a chance that the value could go down instead of up and it is important to consider whether this is worth the risk or not.
- Cash JISAs can be affected by inflation – interest rates on cash JISAs tend to be lower than the rate of inflation, meaning that if the cost of living goes up by more than interest rates, the money in the JISA may not go as far as it could have when it was opened.
Alternative saving options for your child
JISAs are not the only option available when considering saving for your child’s future, and they may not be the most suitable choice for you or your child.
You may prefer the flexibility of being able to access savings at any opportunity and so a regular child savings bank account could be a better option. These accounts can be managed by the child from the age of seven and started with as little as £1, making them a good tool for encouraging children to save and manage their money from a young age. Though child bank accounts often have a lower rate of interest than other choices, they remove the pressure of money being locked in.
Another option is premium bonds, an investment product offered by National Savings & Investments (NS&I). Unlike other investments where you earn interest, with premium bonds you are entered into a monthly prize draw where you can win up to £1million tax free. You’ll need at least £25 to invest. Whilst it’s a fun way to save and can make a nice savings gift for a child, the odds of winning more than the rate of inflation are slim. You can cash in premiums bonds at any time without penalty, but they will not provide a regular income or guaranteed returns.
How we can help you decide on the best savings option for you
At George Square, we understand how important it is to set your child up for a positive financial future. If you would like to learn more about investment or savings options, our expert financial advisers can advise on the best option for you and your family to help you achieve your savings goals. Get in touch with the team today to get them on the right track.
To speak to our independent financial advisers for a free consultation, please call 0115 947 5545 or send us a message here.