This week marks the first anniversary since the launch of the Junior ISA and new research shows that investing in the stock market on behalf of children could still be the best way to maximise returns.
Junior ISAs have not proved as popular as Child Trust Funds (CTFs) as they don’t come with a free government contribution.
The rules also do not allow investments from CTF’s to be transferred to a Junior ISA and if a child already has a CTF, they are unable to open a Junior ISA.
However, despite these grievances that many parents have, the Junior ISA has some distinct advantages and is a good way to help your children learn how to manage their finances.
At the age of 16, a child can manage their Junior ISA, even though the funds remain locked away and cannot be accessed until the beneficiary reaches the age of 18.
One other advantage is that if you open a Junior ISA for a child at a young age, you can afford to invest in slightly riskier assets or emerging market funds because there is time to absorb short term losses.
Guy Knight, sales and marketing director at The Share Centre said: "We have seen far fewer people investing in a Junior ISA than we did in Child Trust Funds. Although this may be down to the lack of Government contribution, the average value of a Junior ISA at The Share Centre is 184% higher than that of a CTF. Junior ISAs have a role in developing financial capability in young people and it is important we remind parents of the benefits they can provide."
The annual limit for contributing to a junior ISA is £3,600 and investments are locked in until the beneficiary reaches the age of 18. This can then be rolled over into an adult ISA.
Between the ages of 16 – 18, the Junior ISA holder can manage their ISA and look at the assets they are investing in and check on returns, all useful financial management skills that can be applied to the adult ISA.
Free guide: Savings for children