Adults have long known about the benefits of individual savings accounts (ISAs), with no tax being charged on the interest and capital gains they make.
But families should not overlook the importance of
Junior ISAs either, with these products likely to have a positive impact in the long term.
How do Junior ISAs work?Parents and guardians can open Junior ISAs on behalf of their children, to help them build a nest egg as they grow up. Although adults can manage these accounts, any money deposited belongs to the child.
Parents are currently able to save £4,080 a year into Junior ISAs. As with adult ISAs, they can place money into a cash account, a stocks & shares account, or a mix of the two. Any interest or capital growth which is achieved will not be subject to tax.
Although they are able to take ownership of their Junior ISAs when they turn 16, children cannot access the money which has been saved until they reach adulthood at 18.
Junior ISAs: The main benefitsWhile starting a family is a rewarding experience, it can easily stretch a household's finances.
But Junior ISAs can help parents plan for their children's future by:
- Covering university costs
Tuition fees, accommodation charges and living costs can quickly add up. But building up long-term savings through a Junior ISA could help families overcome these obstacles
- Helping to raise a deposit
First-time buyers often struggle to raise the deposit required to secure a home of their own. Yet having a nest egg could make this less of a challenging issue for young buyers
- Funding a youngster's first car
Parents can find it difficult to pay for a new car after their child has passed their driving test. However, by helping them to build up savings over time, Junior ISAs can spread the cost and make it less of an issue
- Covering wedding fees
Weddings are an expensive business, with their costs potentially running into thousands of pounds. Junior ISAs can help parents plan far in advance for their children's nuptials, meaning they come as less of a financial shock
Copyright Press Association 2015