27th November 2015 at 1:19pm
Junior ISA – Cash Vs Stocks & Shares
It’s never too early to start investing for a child’s future. A Junior ISA (JISA) could help pay towards anything from university fees to their first car or just put them on the path to a secure financial future. JISAs let you save and invest on behalf of a child under 18, and with no tax on the earnings, the money you put away has the chance to grow even faster.
But did you know that approximately 72% of JISAs are held in cash as opposed to stocks and shares?
What’s the difference?
When it comes to JISAS, there are two choices: the relatively safe and simple cash ISA or the chance to venture on to the markets with a Stocks and Shares JISA.
A Cash JISA is reliable and you are guaranteed to get back all of the money that you put in. But they come with the danger of inflation – the rate of interest you earn on your savings must be greater than the rate of inflation, for your money to actually grow. Cash JISAs are more suited to putting money into children’s hands – it’s not about the growth of the fund.
A Stocks & Shares JISA is more about potential growth and is generally expected to outperform money saved into a Cash JISA over the long term. But as with any investment there is a risk you’ll get back less than you paid in.
Is your JISA reaching its full potential?
With only around 28% of JISAS held in stocks and shares, according to figures from advisory firm Tilney Bestinvest, it’s unsurprising to find, four years on from the launch of the JISA, that the majority of them are in danger of not reaching their full potential.
Evidence of cash being the popular choice is shown in the data provided by HMRC. For 2014/15, there were 365,000 cash and 145,000 stocks and shares accounts meaning £405m of the £582m subscribed into Junior ISAs went into cash.
But just because it’s the popular choice is it the right choice?
What do the professionals think?
Jason Hollands, managing director for communications at Tilney Bestinvest, describes cash as ‘a terrible place to park wealth for the long term as the real value of the capital will be eroded over time by inflation.’
According to John Stirling, chartered financial planner of Essex-based IFA Walden Capital, “if you are looking at JISA investment from the point of view of optimal efficiency, cash investment is unlikely to provide growth.’
If you’re thinking about opening a JISA, make sure to shop around to find the option that’s best for you. Even if you’re not a confident investor or you just don’t have the time, there are a number of stocks and shares JISAs available that let the experts manage your investments for you.
Join the conversation
Would you choose a cash or stocks and shares JISA? We’d love to know your thoughts. Join the conversation and follow us on twitter @StandardLifeUK and Facebook and let us know about your own experience.
The information in this blog or any response to comments should not be regarded as financial advice. A stocks and shares ISA is an investment and its value can go up or down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in November 2015. Your personal circumstances also have an impact on tax treatment.