Junior ISA Allowance: You Don't Need It All to Take Advantage
Friday, November 18, 2011
The new Junior ISA scheme, also known as the JISA, will be up and running in November and will give parents a way of being able to make tax free investments on behalf of their children. This article looks at some ways that parents could look at this opportunity to benefit their child once they turn eighteen and how you don't need to maximise the JISA allowance for it to make a difference.
One thing some parents did when the child trust fund was in operation was to pay the child benefit they received on behalf of their child into their child trust fund. If you can afford to forego child benefit you could do this with the Junior ISA. For their first child parents currently receive £20.30 a week, with a £13.40 payment for all other children. Paying £20.30 into a Junior ISA every week over an eighteen year period will add up to £1,055.60 a year and over £19,000 in total. This is a significant amount of money that a child could have put aside for them.
A lot has been made of the £3,600 a year allowance, but you don't need to use this full amount every year for your child to greatly benefit from the scheme. £10 a week, for example, could make a big difference over the lengthy period of eighteen years. That would be the equivalent of £520 a year, which is over £3,000 less than the allowance, but still almost £10,000 in total. And that is before interest on any investments is taken into consideration.
What about those who aren't able to put aside £10 a week? Would £10 a month be enough to make a difference? The answer is yes - that would be over £2,000 in total. It may not enable your child to buy a home but it could pay for driving lessons, for example, which is something many teenagers struggle to find the money for.
Utilising the advantages of the Junior ISA scheme could pay for your child's living costs while at university. The way tuition fees are paid for will be changing with parents no longer able to fund this for their children. Instead they must take a loan out (something the majority are already having to). There are, of course, also living costs that need to be paid for, something parents can help with. This will mean not having to borrow more above what they need for their fees. If you can invest £500 a year the Junior ISA should cover this. That is just under £42 a month.
The average price of a second hand car is currently around £5,000, and saving towards a Junior ISA could effectively be the equivalent of you buying your child a car when they turn eighteen. £23 a month will result in around £5,000 being paid in the JISA. Car prices will go up, but the interest on the Junior ISA investment should take care of any rises in inflation.
If you are in the position of being able to put £185 a month towards your child's Junior ISA it could be enough to pay for the deposit on a home. With the average first-time home owner now thirty-eight years of age being able to buy one at eighteen could be a major benefit to a young adult.
As the above shows, you don't need to be able to maximise the Junior ISA payments to significantly help your child as he or she approaches adulthood. Anything is better than nothing, and even investing a small amount per month could make a big difference over an eighteen year period.
Andrew Marshall ©
Jump Savings will be offering JISA accounts from November.
