Money Observer’s Prudent Parent ponders whether a Junior Isa is the best savings vehicle for children.
Almost two years ago, shortly after my son was born, I worked my way through a to-do list and decided to prioritise one of those jobs that might fall by the wayside – opening a Junior Isa account.
Given the long time horizon, I chose to invest the money, rather than leave inflation to eat away its real value in a savings account. But, while I spent a considerable length of time deciding where to invest it, eventually deciding on Aberdeen Standard Asia Focus investment trust, I didn’t give enough thought as to whether a Junior Isa was actually the best option.
After all, with the amount that can be shielded from the taxman in Isas each year standing at a whopping £20,000, it is an allowance I cannot envisage myself ever fully using. Moreover, my partner also has her own £20,000 allowance, which makes the separate Junior Isa allowance of £4,368 redundant for the vast majority of parents.
Against that, money in a Junior Isa is held in the child’s name, so parents cannot just dip into it when they’re short of readies.
The big plus, if I had instead chosen to invest money for my son in my own Isa, would have been that I could retain control. By setting up a Junior Isa, I have effectively had a key cut for him which he could use, if he chose, to withdraw all of the cash in one fell swoop when he turns 18. I would hope the money is spent sensibly or that he continues to invest towards one of the big goals in life, such as owning a property. But it will not be for me to decide: my son may have other ideas and wish to blow it all on his main hobby, which at 22 months is collecting buses.
However, this risk can be reduced by educating children on finance and the importance of long-term investing. On that front, time is on my side.