If you want to save or invest over a period of several years, another option is the Junior ISA (JISA). This is similar to the adult ISA and allows you to save money for your child without them paying income tax or capital gains tax on the interest or returns they receive.
The annual allowance for JISAs for the 2021-22 tax year is £9,000, which you can pay into a junior cash ISA or a junior investment ISA, or you can split the allowance between the two.
Money held in a Junior ISA can’t be accessed until the child reaches the age of 18, at which point they can add to or withdraw from it as they would with any other ISA. They can start managing the account on their own from the age of 16.
According to savings website Savingschampion.co.uk, The Loughborough Building Society pays 2.50% on its cash Junior ISA, which can be opened with a minimum balance of £1.
Several investment companies offer ready-made investment Junior ISAs, including Fidelity, Moneybox, Vanguard and Nutmeg, or you can go for a DIY approach and choose the investments you want to hold on behalf of your child or grandchild yourself. Providers of self-invested Junior ISAs include Hargreaves Lansdown, AJ Bell and Fidelity. There are also apps available which can help you build a nest egg for your children too. For example, Beanstalk has a Junior ISA with no minimum contribution limit. Friends and family can link to your account from their own app to top up your children’s savings pots and send you messages to let you know what the money’s for, for example, a Christmas or birthday present, meaning no more trips to the bank or queueing to deposit cheques.
Rather than offering a confusing range of investment options, there is a simple sliding ratio that lets you choose whether to invest more in cash funds or share funds. With the right ratio, if you start depositing £5 per month when your child or grandchild is born, by the time they are 18, they could have as much as £8,000 in savings, although it’s important to remember that the value of investments can fall as well as rise.
If you want to access Beanstalk via its website, you can do so at Beanstalk, or you can download Beanstalk for iOS here and Android here.