PARENTS on a budget looking to stash money away for the kids can save thousands without breaking the bank using these top tips.
Tucking away a fiver a month means you could give your child a nest egg worth nearly £ 2,000 on their 18th birthday, AJ Bell’s head of investment analysis Laith Khalaf said.
That’s where you invest your money into a Junior ISA (JISA), where you can save up to £ 9,000 a year tax-free.
These are special savings accounts for children – and they can be a great way to make your cash go further, Mr Khalaf said.
As a cost of living crisis cripples budgets, many families may have hardly any cash leftover to save after they’ve paid for eye-watering bill hikes.
But if you do have £ 5 to spare each month, Mr Khalaf said a Junior ISA could be worth looking into if you want to put it aside for your kids.
He has over 20 years of experience dishing out investment advice, and is an expert on The Sun’s Squeeze Team panel – here to help you through the big pinch.
If you’re worried about how to make ends meet, are struggling to pay off your debts or don’t know how best to manage your cash, get in touch by emailing [email protected]
What is a Junior ISA?
JISA is a savings account for kids only.
If your child is under 18 and in the UK, you can open an account for them – or, from age 16, they can open one for themselves.
There are two types of JISA – stocks and shares, or cash.
To open an account, you simply need to choose a Junior ISA provider and complete the online application form on their website.
The most common option is the cash JISA. You open these with a bank or building society and get paid a set rate of interest.
You won’t pay tax on the interest you get from your savings.
And there’s a big benefit to opting for a JISA instead of setting up a normal savings account, Mr Khalaf said.
“It’s a bit of a quirk that Junior ISA cash accounts actually pay higher rates of interest than the bank will pay to fully grown adults, so you can actually pick up some very good deals here,” he said.
But Mr Khalaf said parents should think about putting cash into a stocks and shares JISA instead if they are saving over a long period of time.
Using a stocks and shares ISA means your money goes into investments like the stock market, and you don’t pay any tax on gains you make.
It’s riskier than a cash ISA because your return is not guaranteed – as with any investment, the value of your money could go down as well as up.
But Mr Khalaf said the pay back could be bigger.
“It will likely be a long time before your child will access the money, so you should seriously consider investing in the stock market, because the money has time to ride out the ups and downs and hopefully benefit from stronger growth,” he said.
How much could I get?
If you opt for a stocks and shares JISA, saving £ 5 a month from when your child is born up until their 18th birthday could mean you end up with a nest egg worth £ 1,965.
That’s if your investments grow an average of 6% a year.
You could end up with an even bigger windfall if you increase the amount you’re saving.
Squirrelling away £ 10 a month over the same time period would give your kid £ 3,930, and £ 25 a month would be worth £ 9,830 by the time your child turns 18.
At age 18, your child will have access to the money and can either keep saving or withdrawing the cash.
The cash will automatically roll over from a JISA into an adult ISA at this point.
To continue getting the tax-free benefit, make sure you keep the cash in the adult ISA, Mr Khalaf said.
“Your child will continue to benefit from tax-free interest and growth when they do actually start facing tax bills,” he said.
“It also helps to foster a good savings habit and provide them with a healthy nest egg to call upon, either to help them through university, or potentially to go towards a house deposit.”
One savvy saver has stashed £ 2,700 away into their JISA.
We’ve got more on how to put money aside for your little ones – especially if you’re trying to work out how to find the best children’s savings accounts.
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