It’s that time of year again when uncles, aunties and grandparents are scratching their heads wondering what to buy the children in their lives for Christmas. It can be a difficult task, especially when kids seem to have everything they want. But have you considered giving the gift of a Junior ISA? A Junior ISA is a great way for people to save on behalf of their younger relatives and it offers some fantastic benefits. In this article, we will explore how compound interest works and why it’s such an important part of saving for a child’s future and why an investment could be a perfect alternative to a traditional present which will ultimately be destined for a landfill site. 

The Children’s ISA was established in 2011 when Junior ISAs were first introduced and Child Trust Funds were phased out.  A Junior ISA is a great way for children to save. It offers all the benefits of a standard ISA, but with some important differences, mainly that the named parent or guardian is in control of the account.  This can be a good thing, as the money is less likely to be spent on frivolous things (like toys destined for landfill sites). It also means that the money can grow for a longer period, which can significantly impact the final amount.

The money in a Junior Individual Savings Account could be used to buy a first home or to pay for university fees – a gift a child will certainly thank you for! The account also comes with a tax-free allowance of up to £8,000 for the tax year 22/23. This is an important consideration, as it means that the money in a Junior ISA can grow tax-free.

Compound interest is one of the key benefits of a Junior ISA. This is where the interest earned on the account is reinvested so that it can start earning interest itself. This can have a big impact on the growth of the account over time. For example, if you were to save £50 a month into a Junior ISA with an interest rate of 5% (based on historical performance), after 10 years you would have £7,764.11. For how much an investment could be worth checking out our calculator here. 

So, what are some of the alternatives you could give for Christmas, especially if you are a friend or relative of a child?  Well, one option is to give the child a toy. However, toys can be expensive and they often don’t last very long. In fact, research has shown that the average child plays with a toy for just 36 days before losing interest. Tesco claims that the average cost of a toy is between £60-£90, which is quite expensive for 36 days of gratification.

Another alternative is to put the money into a savings account for the child. However, savings accounts typically have low-interest rates and even despite the recent interest rate rises from the Bank of England, this means the money is not going to grow as quickly as an investment vehicle like a Junior ISA.

So, what are some of the benefits of a Junior ISA?

– The money in a Junior ISA can grow tax-free.

– Compound interest can have a big impact on the growth of the account.

– The money is not accessible until the child reaches 18, which means it can grow for a longer period of time.

If you are considering giving a Christmas present that will last substantially longer than 36 days and could potentially help the child in your life’s future, then a Junior ISA could be the perfect option. If you have any questions, please get in touch with us here.