With the tax year 22/23 ending imminently, now is an excellent opportunity to assess if you’ve seized all your annual tax-free allowances and whether your child’s cash or Investment Junior ISA is delivering value for money. Things have changed drastically in the economy in the last 12 months so now may be a good time to reassess your savings and investments strategy. 

This year saw a huge hike in interest rates, we shall probably continue to see this until inflation (currently sat at around 10%, as of Feb/March 2023) falls significantly and the economy is back on surer footing. The Bank of England (BoE) recently stated that the economy is behaving ‘broadly’ as anticipated but growth is not set to return to the economy until 2024. The BoE has also suggested inflation will not be back to its 2% target until next year. Of course, higher interest rates are good news for cash ISA savers with them being at their highest point for almost a decade and a half. The bad news — inflation is still hugely outpacing any gains from higher rates. 

Cash ISAs vs. Investment ISAs 

To make the most out of your Cash ISA savings in the long run, you need to beat inflation, or, at least match it. Although your return on investment may be positive right now, with inflation reaching over 10%, your money’s real-term value is decreasing. By investing wisely and aiming for returns that exceed inflation, you’ll ensure that your money continues to grow over time. This has always been true but is especially true during periods of high inflation.

Cash Junior ISAs 

A Junior Cash ISA is incredibly convenient, providing you with access to your money whenever needed as well as providing all of the usual tax efficiency benefits. The funds in a cash Junior ISA cannot be accessed until the child turns 18 which means the effect of inflation can be felt over a long period. So it’s worth noting that when interest rates are lower than inflation – meaning prices rise faster than savings can grow in value – the value of the cash in a Junior ISA will decrease over time.

What about investment ISAs?

Investment Junior ISAs, as the name suggests, are ISAs that allow you to invest your funds rather than just save them. This is a great way of potentially outperforming inflation and achieving higher returns on your money. There are, however, associated risks with investing rather than saving, but a diverse investment will give you the best chance of beating inflation over the long term and investing is a long-term game. Additionally, there may be fees and charges for managing the investments in the ISA, so it’s worth taking a look at the terms and conditions before making a decision.

Ones to watch

You can only have one type of Junior ISA open at any one time. Nevertheless, it is possible to transfer between Cash ISAs and Investment ISAs as you can with adult ISAs. It’s worth doing your research in advance and comparing the different providers to find which type of Junior ISA suits you and your child’s needs best. Be aware that there can be fees from some providers for transferring.

Ultimately, whether you choose to invest or save should depend on your goals and personal circumstances. It’s important to do your research and explore which option is best for yourself (or your child) when it comes to opening and investing in a Junior ISA. Time is of the essence as the tax year is drawing to a close, and now is a perfect time to reassess your savings and investment portfolio and priorities.