26th August 2021
With the 10-year anniversary of Junior ISAs approaching, hundreds of thousands of families are missing out on the benefits of long-term investing by saving in cash instead.
Launched in November 2011, Junior ISAs enable families to invest money for their children tax-free, but the investment is locked away until the child turns 18. Families can choose to invest in cash or stocks-and-shares.
According to the latest figures, more than 1 million people in the UK subscribed to Junior ISAs in 2019/20, and 706,000 of them are invested in cash compared to 316,000 in stocks-and-shares.
However, those families invested in shares are likely to have seen much better returns over the long term.
The best Junior Cash ISA rate is currently 2.5%, which, if it remained at that level would return 28% over 10 years with interest paid annually. A family investing £1,000 at the start of a 10-year period, at 2.5% per year would see the money grow to £1,280.
Both UK and global equities would have beaten that return over the past 10 years, assuming a 1% per annum charge on the investment.
Returns since November 2011
*All figures include a 1% charge
|FTSE All-Share||£1,000 invested in FTSE All-Share||FTSE All-World||£1,000 invested in FTSE All-World|
(Figures from FE Analytics - 01/11/2011-30/7/2021)
Chris Hood, Investment expert at financial advisers NFU Mutual, said: “The majority of families play it safe when it comes to investing for children and keep the money in cash savings, but families who invested their Junior ISAs in stocks and shares are likely to have made significantly better returns.
“Junior ISAs are locked away until the child turns 18, enabling families to benefit from the longer-term potential of the stock market. However, 70% of Junior ISAs were invested in cash in 2019/20.
“When money is locked away for such a long time, it can weather the bumps in the stock market.
“Not only does this approach have the potential to have a positive impact on the child financially, it can also teach valuable lessons to children that help them understand the benefits of long-term investing.”
Notes to editors
Past performance is not an indicator of future gains.
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