Junior ISAs, or JISAs, have now been available for almost seven years. As it stands at the moment, only the child’s parents are permitted to open a Junior ISA account for their offspring.
However, recent research suggests that over one third of grandparents surveyed would be more likely to save for their grandchild if they were able to open a JISA themselves.
Incentive for grandparents to kick-start grandkids’ future savings habit
M&G and Opinium carried out a survey of grandparents to find out whether they would be more likely to invest more for their grandchildren if they were allowed to open a JISA for their grandchildren themselves.
At present, just 8% of grandparents make regular contributions into JISA accounts that are set up by their children for their grandchildren.
Annual average contributions made into a JISA by grandparents in the last tax year amounted to just over £50 each month, according to statistics compiled by HMRC.
These figures are based on a total of around two million JISA accounts that have been subscribed to.
In the main, JISAs are invested in stocks and shares, rather than cash, which is to be expected given that interest rates are higher on longer term investment products.
This is fine, as long as investors bear in mind that stocks and shares investment comes with a higher degree of risk, and professional financial advice should be sought before tying up cash in this medium.
JISAs Offer Peace of Mind for Grandparents Saving for Grandchildren
JISAs are perfect for grandparents who want to provide for their grandchildren without having to give money directly to their children.
With a direct gift, there’s always the risk that a child or ‘in-law’ may spend the money on something for their home or put it into a general family savings pot that could be dipped into whenever funds run short, rather than being kept for the grandchild.
In addition, grandparents may also be concerned that the content of an ordinary savings account to which both parents have access could become subject to contention in the event of a divorce.
A JISA can only be accessed by the child when they reach the age of 18. The funds could then be used for university fees, to start a pension plan or for the deposit on the holder’s first house.
Currently the limit per year for funds is set to £4,128 per year, and it is a tax-free way to invest or save.
New Parents Should Understand JISA Accounts
New parents might like to give consideration to opening a JISA for their child and providing the grandparents with the details so that they can pay into the account.
This makes the perfect solution for christening presents, birthday and Christmas gifts when very young kids tend to be overwhelmed with toys and teddies that often just end up in a cupboard or a charity shop.
The grandparents can also be confident that their cash will end up with the child.
When you open the JISA account remember that there is an annual limit on how much you can invest. Before opening an account for your child, spend some time checking comparison websites to see who is offering the best ISA rates.