March 1, 2013 6:16 pm
Junior individual savings accounts (Jisas) were launched as a tax-free way for parents and relatives to save regularly for children, but they have a long way to go before they match the popularity of adult Isas.
Six million children were eligible to take up an account when the scheme began 15 months ago, enabling parents to save up to £3,600 a year for each child.
Jisas are available to any child under the age of 18 who did not qualify for the previous government’s child trust fund (CTF) savings scheme. Money can be invested in either cash or stocks and shares, with the savings limit rising to £3,720 from April 6.
However, only 72,000 accounts were opened in the first five months of the scheme, with an average deposit of £1,623. Figures for the past ten months are due to be published by HM Revenue & Customs in April.
Jason Hollands of broker Bestinvest believes the slow start is down to a combination of factors: lack of awareness of the product, the small number of providers at launch and the rise in the adult Isa allowance.
“Unlike the child trust fund, the launch of junior Isas was not accompanied by waves of taxpayer-funded advertising and of course there are no vouchers from the HMRC,” says Hollands.
He also believes the jump in the annual adult Isa allowance from £7,200 to £10,200 in the 2010/2011 tax year, the year before the launch of Jisas, had an impact on take-up.
“With the current adult Isa allowance set at £11,280, and rising again in April, many parents will find they have ample capacity to save in a tax-efficient way without recourse to junior Isas, preferring to retain control over when funds are handed to their children,” adds Hollands.
However, some experts say they have seen more interest in Jisas recently. Darius McDermott of broker Chelsea Financial Services says he has seen a pick-up in the past six months, with twice as many accounts being opened than in the first year.
“Among our client base 75 per cent of junior Isas have been opened on behalf of older children, those born before September 2002 and still under 18. Most are lump sum investments with the average investment much higher than for babies,” he explains.
Junior Isas opened for babies have typically been opened as monthly savings accounts.
|Halifax||Junior cash Isa||6.00%||Linked product. Parent must hold Halifax cash Isa.|
|Coventry Building Society||Junior cash Isa (1)||3.25%||n/a|
|Nationwide Building Society||Smart Junior Isa||3.25%||Rate includes 1.15% bonus until 31.01.14|
|Furness Building Society||The Furness Junior Isa||3.05%||n/a|
|Mansfield Building Society||Cash Junior Isa (1st issue)||3.05%||n/a|
The firm also saw a spike in investments in December, suggesting some investments were made as Christmas presents.
While there are fewer Jisa providers than CTF providers, Hollands believes the junior Isa market offers more choice. He says many CTF providers were small credit unions and societies who offered only cash accounts. Almost 80 per cent of CTF assets went into stakeholder accounts, which are nearly all UK index trackers with very little choice in underlying products.
In comparison, parents looking to invest in a Jisa have access to thousands of investment funds through fund supermarket platforms and private client brokers.
“The choice on offer can actually be daunting so there is a tendency for parents to either opt for ‘one-stop’ funds, such as multi-manager products or diversified investment trusts such as RIT Capital Partners,” says Hollands. Other options are passive funds, such as HSBC FTSE 100 Index fund.
Danny Cox, head of advice at Hargreaves Lansdown, says children with less than five years until they turn 18 should consider opting for a cash Jisa as there is insufficient time to allow for stock market volatility.
The best Jisa rate is 6 per cent from Halifax, although this rate is only available if the parent has their own Isa with the bank. The next best rate is 3.25 per cent from Coventry and Nationwide building societies.
Experts point out that junior Isas currently pay higher interest rates than adult Isas, where the market-leading instant access rate is 2.5 per cent from Cheshire Building Society.
For those with longer timeframes, a stocks and shares junior Isa has the potential to provide a better return than a cash Jisa.
Listen to the FT Money Show podcast on individual savings accounts – from cash Isas to stocks and shares Isas. We look at where you should put your money, and the more unusual products that are eligible for Isas
Cox recommends parents opt for core long-term investments in key areas. “I believe having exposure to a good core UK manager and at the same time having exposure to fast-growing, but higher risk, regions such as Asia or emerging markets could be a sensible strategy,” he says.
He suggests combining the Artemis Income fund with First State Global Emerging Market Leaders fund.
McDermott agrees. For babies and toddlers he recommends the M&G Global Emerging Markets fund or Rathbone Global Opportunities. For older children, he likes HSBC Open Global Return or Newton Global Higher Income fund.
Money held in a Jisa remains locked until the account holder is 18, and cannot be withdrawn by anyone other than the child. When the account matures, the funds can be taken or rolled into an adult Isa. However, at that point the money becomes the property of the child and parents cannot exercise control over it.
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