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Nov 02

Why a Junior ISA could be the ideal Christmas gift for your child

Reading Time: 5 mins

This is a sponsored post on behalf of Wealthify

If you’ve children, caring about their financial prospects is a natural parental instinct. Will your child ever afford to buy their own home? Will university fees continue to rise?

With the festive season *almost* on the horizon, new research from Wealthify suggests opening a Junior ISA for your child could be an “ethical alternative to present buying.” This statement is based on the fact that as many as three quarters of parents (78%) say their child receive unwanted Christmas gifts.

So should you open a Junior ISA for your child this Christmas? And, if so, how do they work? Keep on reading for all the details or click on a link to head straight to a section…

what is a junior isa?

A Junior ISA is a tax-efficient account for children.

Everyone aged under 18 living in the UK can have one, though a Junior ISA must be opened on a child’s behalf by a parent (or legal guardian). Once opened, family members and friends can add funds to the account, up to the annual limit. The Junior ISA limit for the current 2022/23 tax year is £9,000.

It’s worth knowing that the annual ISA limit can be split between a Junior ‘Cash’ ISA and a Junior ‘Stocks & Shares’ ISA. This is much the same way that the annual ISA allowance for adults can be split across ISA types.

Confused about the types of Junior ISAs available? Let’s break it down…

  • A Junior ‘Cash’ ISA is like a normal tax-free savings account. Your child will earn interest on anything saved in one of these accounts.
  • A Junior ‘Stocks & Shares’ ISA is a tax-free investing account. The value of your child’s ISA will be dependent on the stock market.

While Junior ‘Cash’ ISAs remain popular, saving for your child’s future in cash is not your only option given inflation is rampant right now. So, for this article, we’re going to focus on Junior ‘Stocks & Shares’ ISAs.

The tax benefits of a junior isa

All Junior ISAs are ‘tax-efficient.’ This means there’s no tax to pay on any interest or investment returns.

So if you add funds to your child’s Junior ISA early and make a habit of regularly contributing, a tidy tax-free sum will hopefully be waiting for your offspring once they hit 18.

What happens when a child turns 18?

Once your child turns 18 their Junior ISA will automatically convert to an adult ISA. This means the tax-free advantages will still apply to anything sitting in their account.

However, when your child officially enters adulthood it also means the money will be theirs to do as they please. This is something to be mindful of, especially if your child is currently a spender and not a saver!

the end of child trust funds

Junior ISAs replaced Child Trust Funds (CTF) in 2011. Despite this, HMRC data suggests that a staggering £1.32 billion is sitting in forgotten CTFs.

Children can’t hold a CTF and a Junior ISA at the same time. However, it is possible to transfer a CTF into a Junior ISA. To do this, you’ll have to find a provider willing to accept transfers – not all do.

Wealthify – the sponsors of this article – is one provider that does allow CTFs to be transferred into a Junior ISA.

a junior isa could be the perfect xmas gift

According to Wealthify, a whopping £733 MILLION is wasted on unwanted Christmas gifts each year, with 78% of parents saying that some of presents given to their children at Christmas are unwanted. Meanwhile, a quarter of parents say their child receives too many gifts.

Given many of us overindulge at Christmas, these stats may not be too surprising. However, what may raise a few eyebrows is the fact that the research also revealed 37% of parents preferred to save for their children’s future rather than buy gifts.

With this in mind, Andy Russell, CEO of Wealthify, has suggested opening a Junior ISA could be the way forward for parents keen to give their children a financial head start.

Russell explains: “Christmas is a time for giving. But with our research revealing just how many presents go to waste every year, it’s obvious that some of us will be looking for an ethical alternative to present buying.

“Investing in a Junior Stocks & Shares ISA means you can help a child to achieve their dreams – much more meaningful than a toy that will be tossed aside after a month of use.”

How to open a junior isa with Wealthify

Wealthify is a leading investment platform that offers Junior Stocks & Shares ISAs.

When you apply to open an account on behalf of your child, you’ll be asked how much you’d like to contribute. You’ll then be asked to pick one of five investment styles, based on your appetite for risk.

Investment styles offered include ‘Cautious’, ‘Tentative’, ‘Confident’, ‘Ambitious’, and ‘Adventurous’.  In theory, the more risk you take, the higher the potential return. Though when it comes to investing, higher potential returns also correlate to higher risk, so think very carefully before you commit. With investing your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.

In addition to picking your investing style, you’ll have to decide whether you want to open Wealthify’s ‘Original’ or ‘Ethical’ Junior ISA.

The ‘Original’ offering contains a blend of investments from the UK and overseas. The ‘Ethical’ option contains a mix of environmentally and socially responsible investments.

You can apply for a Wealthify Junior ISA on its website or app (iOS and Android). Once opened, you can check the performance, and add funds to your child’s nest egg by signing into your Wealthify dashboard.

Others wishing to add funds to your child’s Junior ISA can take advantage of Wealthify’s new ‘Friends and Family’ feature, as Andy Russell explains: “Our new Friends and Family feature on our multi-award-winning Junior ISA is a hassle-free way to invite friends and family to contribute and a means of opening up conversations about money with your loved ones, which will benefit everyone.

“Sharing the load has never been so simple. Just think of it as a gift towards your child’s future, not just for Christmas!”

Wealthify fees

While Wealthify are sponsoring this article, we’re happy to say that their fees are transparent.

The platform charges an annual fee of 0.6% to manage your investments.

On top of this, there’s an ‘average investment cost’ which includes charges taken directly by fund providers. This cost is typically 0.16% for the ‘Original’ ISA, and 0.7% for the ‘Ethical’ ISA.

There are no fees for adding funds to your account, or for making withdrawals. For more information on fees, take a look at Wealthy website.

Keen to learn about investing? Sign up for our fortnightly MoneyMagpie Investing Newsletter.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. Capital at risk.

*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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