Sponsored and written by Wealthify
Having children is a wonderful thing, but it’s also a big responsibility that requires plenty of planning ahead – especially when it comes to your finances.
Because let’s face it, children can be expensive. It starts with nappies, bibs, buggies, and everything else you need to care for them when they’re babies, then before you know it, they’re asking for their first car or help with their living costs at university. You may even want to give them a helping hand when it comes to saving for their first house deposit or paying for their wedding day in the future.
As a parent who wants to support their children as best you can, how can you say no? At the end of the day, we all want to do what’s best for our kids and ensure that they have the best possible start in life as they move from childhood to adulthood.
What is the best way to invest for your child’s future?
Tucking money away in a general savings account or a Junior Cash ISA is a sensible thing to do as it guarantees a future income – but it might not be the most suitable option if you’re looking for long-term growth. In fact, by solely saving (rather than investing) your money, you could be undermining the financial future of your child without realising it.
Why is this, you ask? When you put your money into a general savings account you earn interest on this, and your money typically grows at the rate your bank is paying you. This means that every time the interest rate you earn goes below the rate of inflation (which can go up and down), the value of your child’s savings will automatically fall too.
So, if you want to give your child’s savings a chance to grow, you may want to consider investing this money as statistics show that over the long-term, investing has almost always outperformed cash. Needless to say, investing in the stock market for your child could give a real boost to their financial future, especially if you’re entering the investment world while they’re still young. However, please remember that with investing, your money can go up and down and you may get back less than you put in.
The earlier you start investing for your child, the longer your money has to grow and compound. ‘Compounding’ is when the profits you make are reinvested back into your investment plan. This means you have more money to invest, so you could make bigger profits as a result.
Which Junior ISA should I choose for my child?
There are two types of ISAs you can open for your child, Junior Cash ISAs and Junior Stocks and Shares ISAs. With a Cash ISA, the money is held in cash and will gain interest as time goes on. However, a Stocks and Shares ISA (as the name suggests) lets you invest your money in the stock market where it may have the opportunity to grow even further. When it comes to the latter, your child also won’t have to pay tax on any profits they gain.
Unlike a standard adult ISA, where you can open a new one every tax year, your child can only have one Junior Stocks and Shares ISA and one Junior Cash ISA open throughout their entire childhood, although you can transfer these to other providers if you wish. However, you can choose to have one or the other, or both at the same time. With Junior ISAs, you will be able to invest up to
£9,000 tax-efficiently for your child each year, and this can be split across both types of ISAs or in just one account.
Any money you pay into these accounts are also locked away until your child turns 18, meaning that nobody can dip into their savings. Your child will then be free to choose to do what they want with the money – whether they buy their first car, put it towards a house deposit or keep it tucked away in an adult Stocks and Shares ISA in the hope that it will grow even further.
When it comes to investing in the stock market, there are many routes you can take. You could, for example, do it yourself and pick investments on behalf of your child via a DIY investment platform.
However, not everyone has the time to do this or may not feel confident to make these decisions – which is where robo-investing services (like Wealthify) come in. Their Junior Stocks and Shares ISA has actually been named the Best Junior ISA at the Personal Finance Awards for the past two years.
All you need to do is head to the website or download the app, choose how much to invest (on an initial and/or monthly basis) and what you want your risk level to be. They will then set up and manage your Plan for you so your investments can work hard in the background while you focus on what matters most – spending as much quality time as you can with your child while they’re still young.
Ready to start investing in your children’s future? Find out more about Wealthify’s Junior ISAs.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.