There are many ways to save money for your children from the very basic to the more complex of products. But which one is more suitable for investing for the long term? The consensus is that a junior ISA (JISA) is one of the best ways to kickstart your child’s investment.

Here we discuss why a JISA is so important and what the benefits are.

JISAs are very tax efficient

The yearly savings limit for a JISA is £9,000, but it’s all tax free and doesn’t count towards your tax allowance. Any income or investment returns on a JISA (e.g. interest, growth on investments) don’t get factored into the child’s allowance. All returns are protected from income and capital gains tax.

It encourages savings discipline

Funds, once saved into a JISA, can’t be accessed till the child reaches the age of 18. This means that it will instil a savings culture from a young age. It will teach children how to watch their money grow without the urge of spending it immediately.

Once a child reaches the age of 18, they can then access the JISA funds or keep on saving by converting the JISA into an ISA (Individual Savings Account). If the money from the JISA is cashed in it can be used to cover a raft of major expenses such as education fees, a deposit on a house or even a gap year trip around the world.

A strong potential to grow wealth through compounding

When it comes to investing, children are very lucky to have many years ahead of them to save. Given the power of compound interest over time, that can mean a lucrative opportunity to grow their wealth exponentially.

Imagine you started a Junior ISA for your new-born baby with £9,000. By adding just £200 a month, your child could have over £57,000 by the time they turn 20. Plus, if they keep up the contributions, they can expect to have close to £130,000 by the time they turn 50. That makes a JISA one of the best gifts you could give your children.

Anyone can pay into a JISA

Only a parent can open a JISA. However, another benefit of this product is that anyone – friends or other relatives can pay into it. Whether you pay yearly or monthly into the JISA is up to you. You can set up regular payments that come straight out of your specified bank account.

Make sure that you co-ordinate with any other contributors the amount you pay into it (whether yearly or monthly) so that you don’t go over the £9,000 limit.

A JISA offers flexibility

You don’t have to keep all your funds in a stocks and shares JISA. You can have one junior cash ISA and one Junior investment ISA at any one time. You just have to make sure you invest the right amounts in each so you don’t lose the tax free status on the respective JISAs.

While you can invest in a cash JISA it’s important to consider that those funds will lose out on the potential returns and diversification benefits that stock market investments can bring. With a stocks and shares JISA you have the option of investing in a diverse range of portfolios.

Another flexible benefit of a JISA is that you can transfer funds from a Cash JISA into a stocks and shares JISA (and vice versa) and transfer funds from a Child Trust Fund into your JISA.

Start investing for your children’s future

Overall, there are many reasons to invest in a JISA right now. The longer you put it off the more chance you have of losing out on interest as well as the benefits of compounding which could really give your investments a boost. Please contact us and talk to one of our advisers about how we can help you.

The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.