In the mind of a parent, a child will always be a top priority and securing its financial future is part of the active care that we owe. A junior individual savings account (ISA) is an option that should not be neglected. Being a long-term investment, your child can have ample funds for studies or, say, start-up capital for the business of his/her dreams upon reaching 18 years of age.
Before deciding whether to get involved in this long-term exercise, run the eligibility test. Your child is entitled to a junior ISA if it resides in the UK, is below 16 or 18 years of age (depending on the provider) and has no investment in a Child Trust Fund.
There are two main types of junior ISAs:
- Cash junior ISAs - you put money into the ISA and your money are completely safe and guaranteed by the government. You get interest paid on the total amount in the account.
- Stock and Share Junior ISAs - the money are invested in stock and share funds and the interest paid depends on the performance of the funds.
There are two financial aspects that you need to consider: the size of contributions and the cap per year. While these may vary from one financial provider to another, they can be as low as £10 if pay-in is to be in regular instalments and £50 if invested as a lump sum. Generally, the investment cap is set to £9,000 a year. Yet a third financial aspect to review is the charges that you pay.
With junior ISA, you can either leave it all to fund managers or you can manage your financial exposure yourself by choosing the mix of funds and investments where your funds will be placed. This, of course, will largely be dependent on your degree of financial intelligence and knowledge.
Bear in mind that with junior ISAs you lay invested funds a side for long. Your child will not be able to take the funds out before it turns 18, unless extraordinary conditions apply. What is more, it might be possible that you end up drawing less than you have invested as a result of poor performance of your selected funds and investments. If on top of that, your funds are in a currency other than the pound, then you might weather negative currency fluctuations (and, naturally, vice versa).
JP Morgan has around 30 fund managers and more than 850 investments to choose from. Do not miss to see the top performing funds and the charges. To start an investment here, you are expected to invest £50 a month or £100 as a lump sum.
With Scottish Friendly, you can start with as little as £10 a month and £50 as a lump sum and can invest up to £3,720 a year.
Family Investments, on the other hand, also has the same annual investment cap and it is open to children from birth. Check the calculator so as to get an approximation of the funds your child will be getting back when 18.
You may want to read about: Stock and Share ISAs
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