I am a financial coach and will be giving our daughter £50,000 for college thanks to a Junior Isa – what you need to know about tax free savings for children
- Claire and Tom Saunders will give a large sum to their daughter
- The couple have saved over £37,000 on a Jisa for their daughter Elodie so far
In four years, Claire and Tom Saunders will hand over control of tens of thousands of pounds in savings to their daughter Elodie.
The thought might give some parents sleepless nights. After all, it’s already taken the couple five years of diligent savings in a Junior Isa (Jisa) and frugal lifestyle to take them from their starting point of £500 to the £37,000 they have at this point. day.
But Claire and Tom, both 46, have complete faith in their daughter’s decision-making.
Investing in her daughter’s future: Claire with Elodie, 14
“The subject of money is not taboo in our home”, explains Claire, financial coach.
“We talk about the idea of saving and the benefits that come with it. Elodie wants to go to university, so we have set ourselves the goal of saving so that we can use the money to cover her fees and rent.
But the couple, who live in north London, admit the Jisa was a “big decision”.
“Once you’ve invested money, you can’t withdraw it until your child turns 18; then the money is theirs. With your own Isa, you can get money if you need it,” Claire explains.
Claire and Tom decided to open Elodie’s shares and share Jisa with AJ Bell when she was in her last year of elementary school.
She recently turned 14 and the couple are on track to building a £50,000 pot for her adulthood.
They also opened a Jisa for their 11-year-old son Theo. Claire and Tom like to pick the funds themselves and ensure that Elodie’s portfolio is broadly spread across FTSE 100 companies, S&P 500 companies and global equities.
And now that Elodie is older, Claire likes to involve her in some decisions about how her money is invested.
Claire says: “My daughter cares about the environment, so we also looked at ethically invested funds.
How Junior Isas works
Junior Isas are a popular way to save for a child’s future. More than £1billion of new money was saved in Jisas in the 2020/21 tax year, according to figures from HM Revenue and Customs.
Launched in 2011, a Jisa offers the same tax-free benefits as an adult Isa, but any money deposited is blocked until the child turns 18, except in exceptional circumstances, such as a terminal illness.
Only a parent or guardian can open an Isa for someone under 16, but once it’s opened, anyone can contribute.
For the 2022/23 tax year, up to £9,000 can be saved in a Jisa. Interest earned on savings or gains made on investments are tax exempt.
Like an adult Isa, it is possible to open an Isa account in cash or stock and shares or have both and split the Isa allocation between the two.
Build a pot: The earlier you open the Isa, the more time you have to build a nest egg for your children
Starting early pays off
The earlier you open the Isa, the more time you have to build up a nest egg for your children.
Savings rates have improved since the Bank of England started raising the base rate last year, meaning parents who don’t want to invest their child’s savings in the stock market have a better opportunity to build wealth.
According to Anna Bowes of Savings Champion.
She says parents should shop around for the highest earning Silver Jisa, as rates vary. The highest earning Jisa is currently 4% with Skipton Building Society.
“Compound interest can really help build a lump sum over a long period of time, so earning as much interest as possible will ensure your savings are working as hard as possible.
‘Review the savings rate at least every year, and vote with your feet if your supplier is no longer competitive. You cannot close the Isa until the child turns 18, but you can transfer it to another provider.
Those lacking investment experience or time can choose an off-the-shelf Isa wallet to match their risk appetite from companies such as Wealthify and Nutmeg.