Financial journalist David Craik explains how parents can use a Junior ISA to kickstart their children’s savings pot.
When it comes to music, movies and even food, it’s tempting to reminisce about how things were different when you were growing up. Your children might not know what you’re on about, but there’s certainly no argument when it comes to personal finance. According to Statista, today’s average first-time homebuyer is 30 years old and has to fork out a deposit of £20,600. To put that into perspective, their equivalent in 1960 was only 23 and paid an inflation-adjusted deposit of £12,700.
The picture is unlikely to improve by the time today’s babies reach adulthood. Research in 2014 warned that the average house price could quadruple to £900,000 by 2034, with the average annual university tuition fee doubling to about £20,000.
Then, of course, there are student loans. In 2017 the average new graduate in England left university with a debt of £50,800, according to the Institute for Fiscal Studies.
With all this in mind, your children need as much support as you can give them to ensure they are financially fit for the future, and a Stocks and Shares Junior Individual Savings Account (also known as a Junior ISA) can help them with that extra boost when they need it most.
Junior ISA basics
A Junior ISA is a tax-efficient investment wrapper that allows a parent/guardian of a child (a UK resident aged under 18) to invest on their behalf. The returns on the investment will be tax-free, and the child cannot withdraw the money until they are 18. In the current tax year 2019/2020 they can pay up to £4,368 into the account.
There are two main types of Junior ISA. The first is a cash Junior ISA that works in a similar way to an ordinary bank or building society savings account, but with the added benefit that all interest paid is tax-free.
The second is a stocks and shares Junior ISA. This allows you to put your child’s savings into investments such as funds, unit trusts, equities or bonds.
An innovative way to invest
VitalityInvest offer a Stocks and Shares Junior ISA, which comes with a Healthy Fee Saver. It enables you as a parent or guardian to choose from a wide selection of funds, including 25 Vitality funds. VitalityInvest also offers a range of non-Vitality funds from over 50 other leading fund managers. You can start a plan with a lump sum of at least £1, 500 or regular contributions of £50 a month.
You can stop, restart and vary regular contributions and pay in additional lump sums at any time up to your child’s annual ISA allowance.
What’s particularly innovative about the VitalityInvest Junior ISA with Healthy Fee Saver, is that Vitality is the only investment provider to bring together wellness and savings. Plans with Healthy Fee Saver get automatic access to the Vitality Programme at no extra cost. This encourages you to take steps towards a healthier future and rewards you from day one with a great range of discounts from our partners. Plus, the more you look after your health, the lower your product charges can be – as little as zero every year, when you invest in Vitality funds. This means more of your money stays invested, giving it a better chance to grow.
Things to consider about savings
Remember, because equity markets can fluctuate, stocks and shares could be a riskier investment than cash. However, if you’re able to take a long view of investing (and parents should remember that stocks and shares Junior ISAs are long-term investments) they could be a good option.
When your child turns 18, the money held in the plan will automatically roll over into an adult Stocks and Shares ISA in their name, remaining tax-free. At this point your child can also access the money.
They could withdraw it to put it towards university fees, backpacking around the world. Otherwise, they could use it as part of a deposit on that predicted £900,000 house.
The value of investments and the income from them can go down as well as up. This means you may get back less than you invest.
This information is not a personal recommendation for any particular investment. If you’re not sure whether an investment is right for you, speak to an authorised financial adviser.
Remember that any tax benefits you receive depend on your tax position as well as current tax law. Both may change in the future.
This article is accurate as of March 2020 and is relevant to Vitality plans and services only.