The earlier you begin investing for your child’s future, the better the outcomes can be. This article will explore the various options available, emphasizing that it’s never too late to start planning.
Investing for a child’s future is an excellent way to provide them with a financial head start as they transition into adulthood. The amount you choose to invest can be flexible, allowing you to adjust contributions based on your circumstances or make a one-time lump sum investment.
Even small amounts can significantly contribute to your child’s financial security in the future, helping them with expenses like their first car, education, or purchasing a home.
Options for Investing in Your Child’s Future
1. Junior ISAs (JISAs)
If you’re considering setting up an investment account for a child, a stocks and shares Junior ISA (JISA) should be a top choice. Children under the age of 18 who are UK residents can have a JISA established on their behalf. While only parents or legal guardians can open the account, relatives like grandparents and family friends can contribute up to £9,000 annually.
Junior ISAs come in two forms: cash and stocks and shares. A child can maintain one of each throughout their lifetime; however, if a stocks and shares Junior ISA is already in place, it must be transferred to a new provider before any additional contributions can be made. Should your child have a Child Trust Fund, moving this into a Junior ISA is also necessary.
Although grandparents can contribute to a JISA, only parents or guardians can initiate the account. If a child reaches 16 or 17 and has not opened a JISA, they may establish a cash Junior ISA for themselves.
At Nutmeg, we provide only stocks and shares JISAs, which should ideally be opened when the child is very young. Early investment allows for potential long-term compounding returns, boosting overall growth.
Once the account is opened by a parent or guardian, grandparents will need the account details to start contributing. This generally includes the account number and the child’s custodian number. Contributions can be made via a one-time transfer or a standing order, but only the registered contact can set up direct debit payments.
2. Savings Accounts
In addition to JISAs, you may also consider traditional savings accounts for your child. Savings accounts allow funds to be accessible at any time and, depending on the bank, children may begin making contributions and withdrawals by the age of seven.
While savings accounts offer flexibility, they typically provide lower returns compared to a long-term investment in a stocks and shares JISA. However, they can serve as a good option for short-term savings and a way for children to gain some financial independence.
Junior ISA vs. Savings Account: Which is Better?
Overall, a stocks and shares JISA is likely a more advantageous option than a savings account due to its potential for higher long-term returns. However, if immediate access to funds is a priority, a savings account might be the preferable choice.
It’s important to note that funds in a JISA are owned by the child and become accessible when they turn 18, whereas a savings account can allow for earlier withdrawals and more immediate financial engagement for the child.
Starting Early is Key
Investing for your child’s future is beneficial at any age, but starting early offers the greatest advantages. Ideally, setting up a JISA shortly after birth can provide about 18 years of compounding growth before the child can access the funds at age 18.
Nutmeg aims to simplify the investment process. You can open a JISA with just £100 and choose from portfolios tailored by our expert investment team.
Need Help with Your Investment Strategy?
If you’re looking to invest in your child’s future or want to discuss your own financial goals, don’t hesitate to reach out to our team. We offer free consultations to help you navigate your investment options.
Important Risk Warning
As with all investments, your capital is at risk. The value of your Nutmeg portfolio may fluctuate, and you could receive less than your initial investment. Past performance is not necessarily indicative of future results.
To open a Nutmeg JISA, the child must be under 16, and funds cannot be withdrawn until they turn 18. Tax treatment varies based on individual circumstances and may change in the future. If you’re uncertain whether a Junior ISA is the right choice for your situation, seeking financial advice is recommended.