You may already be building wealth for your own future using an ISA – but did you know you can do the same for your child by opening a Junior ISA (JISA)?
Saving for your children’s future could give them a healthy financial boost as they enter adulthood, providing more opportunities to explore the world and their place in it, or start their chosen career without having to worry about money.
Like ISAs, JISAs provide tax-free savings and investment potential, making them one of the most effective ways to build a nest egg for your children. Indeed, according to the Standard, approximately 500 children in the UK have in excess of £100,000 in a JISA (1).
Read on to learn how you can build a pot for your children’s futures using JISAs, and talk to your kids about their nest egg.
A JISA is a tax-free way to build a pot for your children’s future
Every parent wants to set their children up for the best future possible. You can enrich their lives by teaching them how the world works, encouraging them to pursue their passions, and helping them achieve their academic potential. And you can also help them practically by giving them a financially healthy start to early adulthood.
JISAs provide an excellent opportunity to build wealth for them.
You can contribute up to £9,000 a year (2024/25) to a JISA and doing so doesn’t affect your own £20,000 (2024/25) ISA allowance.
Like adult ISAs, returns on cash and investments in a JISA are exempt from Income Tax, Dividend Tax, and Capital Gains Tax.
You can open a JISA for your child and start paying into it as soon as they’re born. When your child turns 16 they can take control of the account but cannot withdraw the money until they turn 18. At this point, your child’s JISA will automatically turn into an adult ISA.
A JISA can either be a Stocks and Shares JISA or a Cash JISA
If you have your own ISA, you’re probably familiar with the various types available to you. Children have access to two types: Stocks and Shares, and Cash JISAs.
Cash ISAs offer guaranteed returns, and because your money is held in cash, there’s less risk of losing it. While this may seem like the sensible option, cash savings are more likely to see their value eroded by inflation than investments.
Alternatively, a Stocks and Shares JISA offers the opportunity to invest in equities and funds. Though the value of your child’s money may experience some volatility, investing over a long horizon gives their nest egg opportunity to grow, aided by the positive effects of compounding.
Indeed, according to Nerd Wallet, if you had used a JISA to invest in a fund that tracked the performance of the S&P 500 for the past 15 years, you’d have enjoyed an average annual return of 12.63% – much higher than any Cash JISAs on the market in 2024 (2).
Over the long run, this potential for higher returns could help your child’s nest egg avoid the eroding effects of inflation.
Analysis from Schroders found that stocks have a better chance of beating inflation than cash, and the longer you hold shares the more likely this becomes (3).
Source: Schroders (4)
It’s also important to talk with your kids about money
Building a pot of money for your children is a great thing to do, but it’s also important to educate them about money and finances to help them make the most of the gift you give them.
As your children grow up, explain the savings you have been making for them and get them involved in decisions about where the money is invested. Discuss how they might wish to use the money in the future.
If you’d like the money to be used for a specific purpose such as a house deposit or university fees, now is the time to tell them.
However, bear in mind that when they turn 18, the JISA will become theirs to do
with as they wish.
Talking to your child about their nest egg could better prepare them to benefit from your gift and hopefully prevent them from making any decisions that could have adverse effects.
Armed with both their nest egg, and a sound financial understanding, you’ll be giving your children the best chance at a happy and
successful young adulthood.
Get in touch
If you’d like assistance in setting up a JISA for your child, or to discuss other ways to build a nest egg, get in touch.
Contact Us or call us on 0800 048 0150.
Risk warnings
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
(1) https://www.standard.co.uk/business/money/around-500-children-had-at-least-ps100-000-in-junior-isa-savings-by-2021-b1070356.html
(2) https://www.nerdwallet.com/article/investing/average-stock-market-return
(3) https://www.schroders.com/en-gb/uk/intermediary/insights/with-cash-earning-5-why-risk-money-on-the-stock-market-/
(4) https://www.schroders.com/en-gb/uk/intermediary/insights/with-cash-earning-5-why-risk-money-on-the-stock-market-/
