Are you saving for your children?
Putting aside money for your children’s future is important and could open up more choices and opportunities – giving them a better head-start to life. There are a number of different ways to save, but many are also liable for tax on the money you make.
Junior ISAs are a great way to put aside money for your children, and you can save up to £4,080 every tax year (April-to-April) without affecting your own ISA savings limits. The money in the account belongs to the child, but they can’t withdraw it until they turn 18. They can have control of the Junior ISA when they turn 16.
Who can open a Junior ISA?
Anyone with parental responsibility for a child under 18 can open a Junior ISA, or you can open one yourself if you are aged between 16 and 18. Even those with a Child Trust Fund can now transfer their CTF to a Junior ISAFind out more about our Junior ISA >
What sort of Junior ISAs are there?
There are two main types of Junior ISAs you can open – cash or investment (stocks and shares) based ISAs. Which one you choose depends on how flexible you need the account to be and what sort of risk you are happy with.
Here are some key comparisons between cash and investment-based ISAs:
|Cash ISAs||Investment ISAs|
Many Junior ISA providers, including Forester Life, offer Investment Junior ISAs which are based on Stocks and Shares.
Whilst investing in stocks and shares (i.e. equities) may be a higher risk, it offers the potential for better returns, especially over a longer period of time, such as the life of a Junior ISA. Whilst past performance is not a guarantee of future performance, Barclays Research shows that an investment over 18 years into equities is likely to outperform cash 99% of the time based on annualised real returns analysed since 1899. Over an investment period of 10 years the figure is 90% and over 5 years, it is 74% more likely to outperform cash.
The above graph compares the performance on a £1000 investment talen out 10 years ago and what it might be worth today. Each line represents an index of the type of investment:
- FTSE 100 index – 100% investment in UK Stocks and Shares.
- FTSE APCIMS Income Index – A mixed investment containing Stocks and Shares and fixed interest holdings.
- Interest from Cash.
As can be seen from above, while investing purely in stocks and shares has the potential for greater growth, it is also more vulnerable when there are dips in the market. On the other hand, a mixed investment may not have quite the same growth potential, it is also more risk-controlled when the market fluctuates and can give the potential for a good balanced return.
Beware of the hidden costs of some investment-based Junior ISAs
Unlike Cash Junior ISAs, you will usually need to pay chargesfor the provider to look after your money and make it grow. The key charge to look for is the Annual Management Charge (AMC), ongoing charge, or Total Expense Ratio (TER) which is typically represented as a small percentage of your account’s value each year. However, the aim of the Junior ISA provider is to provide you with net growth to make the annual charges worthwhile.
However, some providers charge additional fees on top of their Annual Management Charge, often buried in their Terms and Conditions. Some charges to watch out for are:
- Platform charges – For using their service to buy or sell funds or to top-up.
- Fund charges – Annual Management Charges for managing the underlying fund.
- Transfer-out fees – If you try to leave for another provider.
- Account closure fees – Especially if you close within the first year.
- Dealing fees – When you buy or sell funds.
- Admin fees – Miscellaneous fees to manage your account.
- Statement charges – Paying to have paper statements sent to you.
These can eat up more of your gains. It pays to read the Terms and Conditions.
Where do I invest?
Choosing the where to best place your savings can be a daunting and confusing task. Some Junior ISA providers provide a “DIY” investment platform, presenting you with thousands of different funds to choose from. While this gives you plenty of choice, often this requires careful research into how, what and where the fund invests in, its level of risk, fees and charges, minimum investments and what to do when the fund pays dividends.
About Forester Life Junior ISA
At Foresters, we aim to make saving for your child as simple as possible, so you can focus on helping them achieve their hopes and dreams. Our Junior ISA is designed to be a straightforward and flexible way to invest for your child’s future. Not only do we offer you our experience, financial strength and reliability, we also offer the expertise of Schroders – one of the world’s leading independent investment managers.
With our Junior ISA, all the confusion is taken away and managed by the experienced fund management team at Schroders, and you can invest from as little as £10 per month. Furthermore our Junior ISA is:
- Expert Risk Control by Schroders – Your savings are balanced between stocks and shares and fixed interest holdings by the experienced fund management team at Schroders.
- Flexible – Save as little as £10 a month, make single contributions, or both.
- Clear, low capped charges – The only charge is an annual management charge of 1% and 0% for the first 12 months. We don’t charge entry, exit or transfer fees. This charge is inclusive of administration charges.
- Manage your account online – View and add contributions at any time. Your family and friends can also contribute – it makes a great gift.
- Keeping up with inflation – We can automatically increase the amount of your regular savings each year to help your contributions keep pace with inflation.
To find out more about our clear, simple savings, visit our Junior ISA page.Find out more about Junior ISA >