We know most parents want to save for their baby once they’ve been born - but it’s often not easy to know where to start!
There are many different types of accounts you can open, which can make it really confusing to decide between them. Junior ISAs are one of the best known types of accounts having been launched 11 years ago by the Government to encourage parents to save for their children and is the one we want to share more information on.
Before we go any further, let us quickly introduce ourselves! We’re the team behind Beanstalk, the award-winning app that is making it really simple and affordable for parents to save for their children. Our mission is to help all families in the UK build a nest egg for their kids to help launch them into adult life.
What is a Junior ISA?
A Junior ISA is a long-term savings account set up by a parent or guardian with a Junior ISA provider, specifically to build a nest egg for their child's future and which benefits from a number of tax advantages. Junior ISAs may be held in cash and stocks & shares and are available to children born in the UK.
It’s tax-free Any interest or investment income gained on the account is tax free and there is no capital gains tax to be paid on increases in value of any investment.
The money belongs to the child and it is locked up until the child is 18. Many parents, and grandparents, tell us they really like this because it means that they are not tempted to touch it! At 18, the Junior ISA automatically turns into an adult ISA in the child’s name which means they don’t need to take the money out straight away.
Cash v Stocks & Shares
There are two types of Junior ISA: “cash” and “stocks & shares”.
Although cash JISAs give certainty (you know that the savings will grow by the interest rate), one thing to think about is the effect of the inflation rate on the value of your child’s savings. If inflation (the general increase in cost each year of goods and services) is higher than the interest rate, then despite the fact your savings have grown, they will be able to buy less with the money than they could at the start. Cash JISAs don’t tend to have minimum contribution requirements.
Unlike saving where your returns are dependent on the interest rate, returns from investing depend on how well the investments do. There is of course a risk that you could end up with less than you put in but evidence suggests that, over the long term, stocks and shares tend to outperform cash as the returns can compensate for the ups and downs*. Stocks and shares JISAs often have high minimum contribution requirements, but Beanstalk does not!
Family can help
Anyone can pay money into a Junior ISA! Unlike Beanstalk, not all providers make this easy but, once opened, friends and family can easily pay money in. Our experience is that grandparents in particular want to help out and Junior ISAs help to simplify this.
Beanstalk makes it uniquely easy for others to contribute directly and our members are taking advantage of this with over 40% inviting other family members to link. With the Junior ISA limit being £9,000 per year for contributions wherever they come from this gives a lot of room for grandparents to pass on gifts.
We’re making saving simple!
That’s our aim at Beanstalk. Our app makes saving for yourself and your children simple. We don’t require any monthly commitments or a lump sum to open an account, and the set up of the account takes minutes from your phone. There are clever tools to help you save, including free money back on your shopping and the ability to round up your purchases and save the spare change. One of our favourite features is how simple it is for others to contribute to your children’s accounts too, they can do this directly from their own app!
This guest post is a partnership between Onoco and Beanstalk, supporting families on their early parenting journey through easy to use and supportive technology tools.
Please note: Capital at risk. As with all investments the value can go up as well as down. Beanstalk is a trading name of KidStart Limited, authorised and regulated by the Financial Conduct Authority. Beanstalk is available on the App Store and Play Store.
*Source: Barclays Equity Gilt Study 2019