Investing for children with a Junior ISA

Rob Morgan outlines the basic considerations when investing for the children in your family.

| 5 min read

Can kids invest in stocks? Perhaps not themselves – but a Junior ISA (JISA) is a relatively hassle-free way to invest in your child’s future. It would allow you to save for their school fees, university education, or that first home deposit - with the money you invest earning interest as the years roll by. By the time your child is 18, they will be able to withdraw from their JISA and enjoy all the benefits that long term investment can bring.

How to invest in your child’s future

The first decision to make is what you are saving for, and the likely timeframe. This will, to some extent, dictate the type of investment you choose. Investments for children generally have time on their side, so taking on the risk and volatility of the stock market in pursuit of higher returns is worth considering.

Leaving money in cash is the lowest risk approach. It provides little return but it does have the important advantage of keeping capital secure. However, cash is unlikely to grow fast enough to keep up with inflation (the increase in the cost of living), especially over long periods.

The main other types of assets – equities, bonds, property and so – each have different characteristics, but unlike cash, all can fall as well as rise in value to a greater or lesser extent. History shows that over the long term equities (representing shares in individual companies) are the most volatile asset class but have also provided the best returns. For more, see the section of our website dedicated to new investors.

1. Find the right Junior ISA

Once you have considered which asset class is appropriate for your needs it is time to look at how to invest in it. One option that is notable for its tax-efficiency and flexibility is a Junior ISA.

Junior ISAs are a popular way for family and friends to build up tax-efficient savings and investments for a child. The tax benefits are the same as an adult ISA – no capital gains tax, and no further tax to pay on income. Withdrawals are possible from the age of 18 when it automatically converts to an adult ISA, meaning the pot can be useful to help with the cost of university or a deposit for a house.

A parent or legal guardian of an eligible child can open a Charles Stanley Direct Junior ISA online, manage the account and make the investment decisions. Family friends, relatives, and grandparents can’t open a Junior ISA unless they are the child’s legal guardian – though they can contribute at any time up to the annual investment limit, which this tax year is £9,000 per child. Please note Charles Stanley only provides Junior Stocks & Shares ISAs and not Cash ISAs.

The key benefits of the Charles Stanley Direct Stocks & Shares Junior ISA:

  • No set-up costs and competitive charges
  • Easy to manage
  • Flexible – contribute lump sums whenever you want or a monthly amount of £50 or more
  • Wide investment choice
  • Award-winning customer service
  • Transfer in existing Junior ISAs or Child Trust Funds.

2. Find and transfer any existing holdings

You can transfer a Junior ISA to another provider at any time, as well as turning your Cash JISA into a Stocks & Shares JISA. If you or your child has an existing Child Trust Fund, you can track this down and notify your provider of the switch. It’s important to note you can’t withdraw money from a JISA until your child turns 18. When this happens, their JISA account will change into an Adult ISA – either a Cash or Investment account, depending on what you had originally.

3. Manage your investments

Our JISA is flexible and easy to manage - you can contribute ad-hoc lump sums or a monthly amount via direct debit of at least £50. There is also a wide investment choice, including thousands of funds, investment trusts, exchange-traded funds (ETFs) and shares.

If you are not sure where to invest our Preferred List of funds selected by our research team could provide you with a starting point for your own research. Alternatively, if you would rather be a ‘hands-off’ investor, Charles Stanley’s range of multi asset funds could provide you with a great value, professionally managed portfolio in one easy-to-buy investment.

Starting early could make a huge difference to the savings your child can accumulate in a Junior ISA, and regular small amounts can add up over time. If parents put away just £100 a month from birth this could result in a sum of £34,666 at age 18 (assuming growth of 5% a year after charges).

4. Consider responsible investing

Increasingly, people want their investments to do more than make money. Responsible investing is an investment approach that considers social and environmental good as well as financial return.

Fortunately, there are ways to marry profit with principles and the variety and scope of these investments has expanded rapidly in recent years. There is also more focus on more positive factors and an alignment of portfolios with targets, for instance in respect to climate change, sustainability and social improvement.

Start your investment journey

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Learn more about our Junior ISA

Save for your child’s future with our tax-efficient Junior Stocks & Shares ISA and give them a financial head start.

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Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus.

The information in this article is based on our understanding of UK Legislation, Taxation and HMRC guidance, all of which are subject to change. The tax treatment of pensions depends on individual circumstances and is subject to change in future. This article is solely for information purposes and does not constitute advice or a personal recommendation.

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