A Junior Isa taught my son to save… and gave him £8,000: How to engage your kids with money and take advantage of rising rates or invest
Parents and grandparents looking to help a child build a nest egg could benefit from growing competition among Junior Isa providers in recent weeks, which has led to higher interest rates and lower fees on some of the best deals.
Cash Junior Isa yields soared to 4%, with building societies in Coventry and Skipton both offering that rate.
Hargreaves Lansdown has thrown down the gauntlet to the actions and actions of Junior Isa providers by making its HL Junior Isas effectively free to manage.
On the upside: Cash Junior Isa yields have climbed as high as 4% in recent weeks
Rival wealth platform Interactive Investor allows clients to open a Junior Isa for free under its Investor Plan or Super Investor Plans. They can have as many free Junior Isas as they have children.
The Fidelity investment platform does not charge platform fees on Junior Isas.
If it’s been a while since you’ve checked your child’s Junior Isa, it may be worth checking out. If you’re paying a fee for a stock and stock version or getting a rate well below four percent on a cash Junior Isa, ask yourself if you’re still getting good value.
A Junior Isa taught my son to save – and gave him £8,000
Silver Lessons: Catherine Thomas Humphreys and Toby
A junior Isa provides a great opportunity to teach your child about money and the importance of saving so hopefully they don’t waste the money as soon as they can access it.
Catherine Thomas Humphreys of Chesterfield used her son’s Junior Isa to teach him how to save. She opened the account for Toby, now 20 and a trainee paraplanner, when he was a child. By the time he was able to access it, he had a nest egg of £8,000.
“Toby added to his Junior Isa with the money he had saved from birthday parties and paper tours,” Catherine explains.
“When he turned 18, he spent some of his money, put some in emergency cash and kept the rest at Isas.”
Investment or cash: which is better for children?
The only major difference between junior and adult Isas is that only £9,000 can be paid into a junior Isa each tax year, and they are not accessible until the child reaches the age of 18.
Children can have money or a Junior Isa investment – or one of each, as long as they don’t exceed the £9,000 limit.
Cash Junior Isas are by far the most popular. But it is the Junior Isa investments that tend to yield the biggest profits over the long term.
For example, if you put the entire £9,000 allocation into investments and assume an annual growth rate of 5%, you would have £244,192 after 18 years.
If you pay the same amount in a Junior Isa in cash with an average annual interest rate of 1.5%, you’ll be building up a nest egg worth £197,634 over 18 years, or £46,000 less. Interest rates on the best accounts are higher than that right now, but have averaged around 1.5% over the past few years.
Many children can choose to access their Junior Isa when they reach the age of 18.
However, if they left her untouched in an Isa share and she continued to grow at 5% a year, with no further deposits, she would be worth £460,459 at age 30.
Leave it alone until the child turns 65 and he would have pension savings worth £2,539,901 – all protected from the taxman.
Sarah Coles, personal finance manager at Hargreaves Lansdown, says: “Parents can be wary of investing because they see it as risky. But while there will be short term ups and downs, in the long term they tend to outperform silver.
“Cash, on the other hand, runs the risk of not keeping pace with inflation.”
> The best Junior Isa cash rates: consult our savings tables
Why do children need a tax envelope?
If they earn more than £1,000 in interest in a tax year, they pay income tax on the excess. If their money is invested, they are subject to the same tax deductions on capital gains and dividends as everyone else.
Anyone can pay into a Junior Isa, but a parent or guardian must open the account. They’re a good option for grandparents who want to give money while they’re alive, but don’t want their grandchildren to have access to it until they turn 18.
Gifts are generally exempt from inheritance tax if the donor survives for seven years after making it.
Compare the Best DIY Investment Platforms and Isa Stocks & Stocks
Investing online is simple, inexpensive and can be done from your computer, tablet or phone when and where it’s convenient for you.
When it comes to choosing a DIY investment platform, Isa stocks and shares, or a general investment account, the range of options can seem overwhelming.
Each provider has a slightly different offering, charging more or less for trading or holding stocks and providing access to a different range of stocks, funds and investment trusts.
When choosing the one that’s right for you, it’s important to consider the service it offers, as well as the administration and trading fees, and any other additional costs.
To help you compare the best investment accounts, we’ve analyzed the facts and put together a comprehensive guide to choosing the best and cheapest investment account for you.
We highlight the major players in the table below, but advise you to do your own research and consider the points in our comprehensive guide linked here.
>> This is Money’s complete guide to the best investment platforms and Isas
The platforms presented below are independently selected by This is Money’s specialist journalists. If you open an account using links that have an asterisk, This is Money will earn an affiliate commission. We do not allow this to affect our editorial independence.
|Administration fees||Expense||fund trading||Standard Stock, Trust, ETF Trading||Regular investment||Reinvestment of dividends|
|A.J. Bell*||0.25%||Max £3.50 per month for stocks, trusts, ETFs.||£1.50||£9.95||£1.50||£1.50 per transaction||More details|
|Bestinvest*||0.40% (0.2% for out-of-the-box wallets)||Account maintenance fees reduced to 0.2% for ready-to-use investments||Free||£4.95||Free for funds||Free for income funds||More details|
|Charles Stanley live||0.35%||No stock platform fees if a trade is made that month and an annual maximum of £240||Free||£11.50||n / A||n / A||More details|
|Loyalty*||0.35% on funds||Fees from £45 up to £7,500. Max £45 per year for stocks, trusts, ETFs||Free||£10||Free funds £1.50 stocks, ETF trusts||£1.50||More details|
|Hargreaves Lansdown*||0.45%||Capped at £45 for stocks, trusts and ETFs||Free||£11.95||£1.50||1% (minimum £1, maximum £10)||More details|
|Interactive Investor*||£9.99 per month, or £4.99 under £30,000, £12.99 for Sipp||£5.99 per month back in free trading credit (not applicable to £4.99 plan)||£5.99||£5.99||Free||€0.99||More details|
|iWeb||£100 single||£5||£5||n / A||2%, maximum £5||More details|
|Etoro*||Free but not Isa or Sipp||The investment account offers stocks and ETFs. Beware of high risk CFDs in the trading account||Not available||Free||n / A||n / A||More details|
|Free exchange*||Free for Basic account, £4.99 per month for Standard account with Isa||Freetrade Plus with more investments and Sipp is £9.99/month including tax. Isa Fee||no funds||Free||n / A||n / A||More details|
|Avant-garde||0.15%||Only Vanguard funds||Free||Free Vanguard ETFs only||Free||n / A||More details|
|(Source: ThisisMoney.co.uk January 2023. A percentage administrative charge may be levied monthly or quarterly|