SAVING £50 a month for your child could set them up for life if you make use of a Junior ISA.
Tomorrow marks 10 year since the kids’ savings account were launched.
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A Junior ISA is a tax-free savings account for those aged under 18, where you can squirrel away £9,000 a year.
Starting saving early for your children soon adds up.
Almost a million Junior Isas were opened by parents and grandparents last year – but this means millions of children are still missing out.
We want to show you how easy it is to build up a decent pot of cash for your kid even if you start small.
Tucking away just £25 a month from when they’re born could bag them a savings pot of more than £10,000 by their eighteenth birthday.
Junior Isas were introduced in 2011 to replace Child Trust Funds.
They come in two forms, cash accounts and investment accounts.
Most people choose a cash ISA as they’re safer.
You open these with a bank or building society and get paid a set rate of interest, which is usually better than you can get on an adult savings account.
Your money is protected in these accounts up to £85,000 too, which is an added benefit.
The top paying account at the moment is Bath Building Society, with interest of 2.5 per cent.
If you saved £50 a month into this account, your child would have £13,650 by age 18, assuming the rate doesn’t change.
Investment ISAs are riskier because your return is not guaranteed – with any investment the value of your money could go down as well as up.
But if you pick the right investments, you could earn greater rewards.
How much can my money grow?
With an investment account, instead of your money sitting in the bank as cash, it goes into assets such as company shares.
Hargreaves Lansdown has previously suggested that over a 10-year period, low-risk investment will likely return an average of around 3 per cent a year.
Meanwhile, medium-risk investors are likely to get an average of 5 per cent and high-risk investors could get as much as 8 per cent.
Based on those figures, a higher-risk investors could end up with a whopping £24,000 by investing £50 a month over 18 years.
Medium risk investors could get £17,500 and low risk ones, £14,300.
But growth is never guaranteed, so remember you could lose money as well as gain it.
Experts say you shouldn’t put your money into the stock market if you are likely to need it any time soon.
Typically, it is advised that you tie up your cash for at least five years if you’re going to invest.
That’s because this timeframe gives you money time to recover if there is a dip in the stock market like there was at the start of the Covid pandemic or just after the Brexit vote.
Investing can seem scary but these days plenty of providers have lots of options to keep things as simple as possible.
You don’t have to be an expert.
Top tips to get started
Choose a platform
The first thing you need to do when opening a Junior investment ISA is to choose a platform. This is the website the account will be with.
Look out for charges – they can be as cheap as 0.15 per cent a year up to 1 per cent or more.
That’s important because the more you pay in fees, the less your money can grow.
Pick your investments
You don’t have to be the Wolf of Wall Street to pick investments.
Most investment sites have best buy lists of their favourite funds, or can offer you ready-made portfolios based on how much risk you want to take.
Choosing a fund rather than picking individual stocks tends to be safer.
This is because funds spread your money across lots of different stocks, which reduces you risk as you’re not putting all of your eggs in one basket.
Choose your fund
There are lots of different types of fund too, which can be daunting.
So-called active funds have a fund manager choosing where to invest your money.
These can deliver top performance but may be a bit pricier.
Alternatively, there are tracker funds and these simply copy what the stock market does.
You might choose the copy the UK stock market, the FTSE, or the US one, the S&P 500.
We’ve told you before how you can give your child £18,000 on their 18th birthday by saving just £1.67 a day.
There’s even the chance to make your child a millionaire by the time they are 65.
Money saving expert, Martin Lewis, has explained how you need to put £1 in a LISA if you hope to buy your first home in the next 10 years.
Martin Lewis explains what a Lifetime ISA is and how to get a £1,000 a year bonus
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