You can currently stash away £9,000 each tax year in a junior ISA – either in a cash or investment version of the account – where earnings are tax-free Read holly_thomas_'s guide to junior ISAs, tax-free savings account for children ⤵️
For a better bet at beating inflation over the longer term, parents should consider a stocks and shares junior ISA. Historically stocks and shares produce better returns than cash over the longer term.
Suter adds: “Lots of parents keep money in cash for their children, but if you start saving when they are young investing could be ideal, as you have many years to ride out the ups and downs of the stock market.”In simple terms, your money earns a return in the first year, and both the original cash and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is known as compounding.
Barbara asked the parents of her youngest three grandchildren – Ava, five, Heidi three, and Marnie, two – to open junior ISAs where she could invest a lump sum as well as additional amounts during the year for their future. Instead of trying to pick the winners yourself, you can gain exposure to a group of companies by investing in a fund. Your money is pooled with that of other investors and invested in a group of companies.
Hollands also suggests the F&C Investment Trust, run by a manager who has selected more than 350 holdings, mainly in large, publicly listed companies in the developed world. It also includes modest exposure to emerging markets and private companies through investment in private equity funds.
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