Junior Isas: We’ll hand £50k to our daughter for university

In four years’ time, Claire and Tom Saunders will hand over tens of thousands of pounds in savings to their daughter Elodie.

The thought may give some parents sleepless nights. After all, the couple have spent five years diligently saving up a Junior Isa (Jisa) and a frugal lifestyle to take them from their £500 starting point to the £37,000 they have to date.

But Claire and Tom, both 46, are confident in their daughter’s decision making.

“The subject of money is not taboo in our household,” says Claire, financial coach.

‘We talk about the idea of ​​saving and the benefits that come with it. Elodie wants to go to college, so we’ve set that as a savings goal so we can use the money to pay her tuition and rent.”

But the couple, who live in north London, admit the Jisa was a “big decision.”

“Once you put the money in, you can’t take it out until your kid turns 18; then the money is theirs. With your own Isa you can get to the money if necessary,’ says Claire.

Claire and Tom decided to open up Elodie’s stock and share Jisa with AJ Bell while she was in her senior year of elementary school.

She recently turned 14 and the pair are on track to have built up a £50,000 pot before her adulthood.

They have also opened a Jisa for their son Theo, 11. Claire and Tom like to choose the funds themselves and make sure Elodie’s portfolio is widely 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 of the decision-making about how her money is invested.

Claire says, “My daughter cares about the environment, so we also looked at funds that are ethically invested.”

How Junior Isas works

Junior Isas are a popular way to save for children’s futures. More than £1 billion in new money was saved in Jisas in the 2020/21 tax year, according to HM Revenue and Customs figures.

Launched in 2011, a Jisa offers the same tax-free benefits as an adult Isa, but all funds deposited are locked away until the child turns 18, except in exceptional circumstances, such as terminal illness.

Only a parent or guardian can open an Isa for someone under the age of 16, but once it’s opened anyone can pay into it.

For the 2022/23 tax year, up to £9,000 can be saved in a Jisa. Interest on savings or gains on investments are tax-free.

Like an adult Isa, there is the option to open a cash Isa or stock Isa account or have both elements and split the Isa allowance between the two.

Build a jar: The sooner you open the Isa, the more time you have to build a nest egg for your kids

Starting early pays off

The sooner you open the Isa, the more time you have to build a nest egg for your kids.

Savings rates have improved since the Bank of England started raising rates last year, meaning parents who don’t want to invest their child’s savings in the stock market have a better chance of building wealth.

Parents who opened a cash Isa for their child at birth, paid 4 per cent interest and deposited the maximum allowance of £9,000 a year until they turn 18, would be on track to receive more than £240,000, according to Savings’ Anna Bowes. Champion.

She says parents should look for the highest paying money Jisa as rates vary. The highest paying Jisa is currently 4 per cent at Skipton Building Society.

“Compound interest can really help you build up a lump sum over a long period of time, so earning as much interest as possible will help your savings work as hard as possible.

‘Check the savings rate at least every year and vote with your feet if your provider is no longer competitive. You cannot take out the ISA before the child is 18, but you can switch to another provider.’

Those who lack investment experience or time can choose a ready-made Isa portfolio to suit their risk appetite from companies like Wealthify and Nutmeg.