Published: 15/01/2013 14:08 - Updated: 03/06/2013 09:09

Stepping out of the shadow

The Bank of England governor warned in November that the children of the UK are doomed to “live under the shadow” of the economic crisis and continuing recession “for a long time”. It’s time for parents to put their children’s futures first and start saving as soon as possible.

But what are the options? Knowing you have to save is one thing, but you need to actually do it. With junior ISAs now a year old, they represent one of the best options out there to really put sufficient savings in place for their futures.

So, what do you actually know about junior ISAs and junior ISA providers?

The need for savings

According to recent research from Family Investments, 92% of parents with children under the age of 18 noted the importance of saving on behalf of their children. However, more than half – 56% - didn’t know what a junior ISA is.

You can see where the problem lies. If they don’t know about it, how can the benefit be gained for their children?

If that sounds like you as a parent, read on.

Junior ISAs explained

We all know about ISAs. They’ve been around for ages, with most of us being aware of the basics such as an annual allowance and tax benefits. But did you know they are split into cash or stocks and shares ISAs? Well, even if you did you may not be aware of the fact that the same applies to junior ISAs.

ISA allowance

As mentioned above, ISAs have a yearly allowance. For junior ISAs this is set at £3,600.

For adult ISAs the allowance varies between cash (a total of £5,640) and stocks and shares (a total of £11,280 – although this can be split half and half between the two), whereas the limit is the same for junior ISAs.

The difference between the two

A cash junior ISA is in the form of a savings account, with interest gained over time. However, the main difference between this and a standard savings account is the fact that no tax is paid on the interest earned.

With a stocks and shares junior ISA investments can be made through the ISA in stocks and shares and a variety of other investment options. Whilst there is always the danger of investments going down and you losing out on the money you pay in, with good investment choices built over time there is the potential to make much more than through a cash ISA. In essence, the choice is up to you.

The benefit

The benefit of course lies in building up savings over time, whether through a cash or stocks and shares option. This can be drawn once they turn 18, automatically transferring to an adult ISA. It’s in their name, so the decisions are up to them. But you’ve put them in the best position to step out of the shadow.

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