A JISA today will help your kids work, rest and play.

"Investing over a long time period also allows you to ride the ups and downs of markets and recoup any losses."

As parents and grandparents, we constantly worry about our children’s futures, not least their financial futures, but when life is busy, we tend to put off doing something about it. But during lockdown parents have not only spent more time with their children, talking about their future hopes and dreams, they have more time to actively seek out ways of funding their children’s future. The result is that during lockdown, money saved on holidays, restaurants and entertainment is being invested into Junior ISAs (JISAs).

JISAs were launched in 2011 and replaced child trust funds.  They are a tax efficient investment account akin to an adult ISA, and can be opened by parents, grandparents or guardians as stocks and shares or cash JISAs, on behalf of each child.

The annual limit on these tax-free savings vehicles more than doubled last year to £9,000 in April 2020 per child which is a sizable amount if invested each year over the long term.  This can compound into a meaningful pot to fund University or first property, or it can be converted into an adult ISA once the recipient reaches 18 years of age, and then carries on building tax free.

Cash or Stock and Shares JISAs

The most recent HMRC report into ISAs, found that in 2018-19, £974 million was saved into JISAs, but worryingly 57% of this was in cash JISAs. Whilst an individual might have a low risk tolerance and therefore feel more comfortable with a cash ISA, it is vital to think in terms of real returns. The risk is that with inflation, sitting in cash can produce returns less than inflation. Investing in JISAs tends to mean a longer investment horizon which allows savers to think about taking higher risk, which in turn is normally associated with higher returns. Investing over a long time period also allows you to ride the ups and downs of markets and recoup any losses.

It is true to say that stock and shares are riskier due to volatility, however over the last 119 years, they have provided a return after inflation of +5.2% per annum, which compares with just +2% per annum for bonds and +0.8% per annum for cash (Global Investment Returns Sourcebook 2020).

Magic of Compounding

Investors also benefit from the miracle of compound interest, something which Albert Einstein called “the greatest mathematical discovery of all time”.   This is because you are not just benefiting from the growth of the original amount invested but the growth from the various interest and dividends you receive along the way.

Looking at the principle through an investing prospective, a 5% annual return (before fees) over the 18-year period would not result in a return of 90% – you might think it would be simply 5% * 18 years = 90%, but because of the compounding, the actual number is 141% (being 1.05 to the power of 18 minus 1).  The longer the period, the greater the effect of compounding.

Example

• If the maximum contribution of £9,000 each year is made for the maximum 18 years of a Stocks and Shares Junior ISA, with a 5% return and a 1% fee, the total profit would be £78,216, and your total savings pot becomes £240,216. You benefit from no personal income or capital gains tax to pay on any gain made within the Junior ISA.
• Alternatively, contributing into a Cash ISA with a 1% annual return and no fee would return a profit of £16,298, giving a total pot of £178,298.

Time is Money

Start Securing Your Kids Financial Future Today

SCM Direct offers a Stock and Shares JISA with a Total Cost of Investing (we hide nothing) fees that range between 0.87% and 1.01% (as of Feb 2021) depending on which Investment Portfolio is chosen – including the SCM Ethical (ESG) Portfolio which is now also available for JISAs, click here to see more.

So either check out our portfolios online here or contact one of the SCM Team at enquiries@scmdirect.com or call us on 0207 838 8650.

Capital at Risk.
The value of investments can go down in value as well as up, so you could get back less than you invest.

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