Many Britons will want to plan for the future of their young loved ones, giving them the best start in life. For parents and grandparents, this may manifest in opening a Junior ISA (JISA) to deposit cash into for the long-term future of a child. The long-term, tax-free savings vehicle is available to children, with a current savings limit of £9,000 annually.
Many choose cash due to the perception it is a safe option which will steadily grow in interest and provide a final return.
However, some are stepping out to take a chance on investment, which although coming with risks, could create a better return.
Individuals should always be aware, though, they could get less than they originally put in.
Heather Owen, financial planning expert at Quilter, commented on the matter, and said: “When it comes to the UK’s savings behaviours, cash is king. Relatively few people choose to invest their savings in the stock market and instead favour current or easy access savings accounts, despite the historically poor returns on offer.
“Cash is favoured for both adult ISAs and Junior ISAs, with over two-thirds of such accounts being cash only products.
“While holding cash is no bad thing, favouring cash over investments is unlikely to build long-term financial prosperity as savers will miss out on the miracle that is compound growth, and inflation may simply erode the real value of their savings.”
For children and grandchildren’s savings accounts, though, the matter can be exacerbated.
This is because cash in Junior ISAs are often loved away for the long-term, until the young person reaches 18.
Investments, it is argued, are a far better solution as in the long-term, this can ride out any stock market volatility.
As a result, then, the scope for compound growth is considered to be much greater.
The Quilter research found just under a third of JISAs are currently allocated to stocks and shares.
This is compared with four-fifths of Child Trust Funds (CTFs), the predecessor to JISAs – but both cannot be held simultaneously.
Ms Owen concluded: “As we approach the ten-year anniversary of JISAs in November this year, the government should consider why so many JISA accounts are allocated to cash
“It should consider whether we can learn an important lesson from CTFs by developing a stronger nudge framework to guide parents into opening investment accounts for their child.
“We have an opportunity to create a new generation of investors entering adult life with the best possible financial start. That means avoiding the meagre returns on offer from cash products in favour of letting compound interest work its magic.”
The Government has explained only parents or a guardian with parental responsibility can open a Junior ISA for under 16s.
However, children aged 16 and 17 can open their own Junior ISA, as well as an adult cash ISA.
The accounts are available from a range of banks, building societies, credit unions, friendly societies and stock brokers – who should be contacted directly for more information.