Save for the children: Four out of five parents saving for child's future
- However, over half are using savings accounts rather than tax-free Junior ISAs
- 3rd November sees the three year anniversary since the introduction of the Junior ISA
- A third of parents unaware they can transfer from CTFs to JISAs from next year
Nearly four out of every five parents (78 per cent) are actively putting money aside for their children’s long-term future according to new research out today. However, despite historic low interest rates, over half of those parents that are saving (51 per cent) are choosing to store money away in savings accounts, many of which, while offering a safe haven for their money where capital is guaranteed, could be attracting only meagre rates of interest.
The research among 2,000 parents, commissioned by ISA provider Scottish Friendly, coincides with the three-year anniversary since the launch of the Junior ISA (JISA), on 3rd November, 2011. The new JISAs replaced the Child Trust Fund (CTF) as an alternative way for parents to save for their children’s future in a tax efficient way. However the research shows that just 21 per cent of parents that are currently saving, are investing in a JISA.
The five top saving vehicles for parents putting money aside for their children are:
- Savings account (e.g. bank or building society) - 51 per cent
- Child Trust Funds - 26 per cent
- Junior ISA (JISA) - 21 per cent
- Children’s current account - 15 per cent
- Investments - 9 per cent
Calum Bennie, JISA marketing manager at Scottish Friendly, said:
Interest rates remain at an all-time low and this is reflected in the rates of return on cash savings accounts. While your capital is guaranteed with cash, stocks and shares JISAs offer the potential for greater growth over the long term – potentially for an investment period as much as 18 years. Stocks and shares investments can of course go down as well as up and the original investment is not guaranteed but over a long investment period you are giving your money the chance to ride out the volatility of the stock market.
In April next year, the Government will allow parents to transfer Child Trust Funds to Junior ISAs, giving better rates and choices for the 15 per cent of parents that still currently hold these for their children.
Of those parents that currently have a CTF set up in their child’s name, just eight per cent plan to keep the money where it is. One in three are planning to move the money into a JISA, while a quarter (25 per cent) have yet to make up their mind on what to do. However, most concerning is the third of parents (33 per cent) who didn’t know that moving the money was an option.
Parents planning to transfer their money from a CTF to a JISA have two options available to them; a cash JISA or a stocks and shares JISA, sometimes called an investment JISA.
The funds that people choose to invest in through an investment JISA will be dependent on the personal preferences of the investor, their attitude to risk and knowledge of the stock market. Fund choices include UK stock market trackers to more exotic overseas funds.
Once Scottish Friendly’s ‘My Choice (Junior ISA)’ has been set up by a parent or guardian, anyone can pay into it. In addition, and unique to Scottish Friendly, instead of one big pot, separate individual policies can be set up, with each policy having its own description, e.g. ‘Gift From Granny’, ‘Uncle Allan’s Uni Fund’ or ‘Flat Deposit’. As long as you stay within their annual allowance, you can have as many policies as you like for your child.
Junior ISAs essentially create a living trust fund for your child, giving them a head start as they enter adulthood. Saving into a JISA does not just have to be the responsibility of the parents alone.
We have found that many people like to set up separate savings ‘pots’ within their JISA so that anyone can contribute throughout the child’s life. So for instance, you might have a ‘Grandparents pot’ where each Christmas or birthday Grandma and Grandad can contribute and then watch as their specific contributions perform over time. It essentially creates a community of savings for children.
Tax treatment depends on individual circumstances and tax law may change in the future. Tax-free means the fund the plan invests in grows free of income and capital gains tax (other than tax on dividends from UK shares).