According to a recent freedom of information request from Standard Life, there are now 400 Junior ISA (JISA) accounts in the United Kingdom that have accumulated more than £100,000.

The accounts, which transfer ownership from parents or guardians to the child when they turn 18, have the potential to provide significant support to youngsters as they begin their adult life. The tax efficiency of JISAs makes the saving strategy one of the most effective in the UK today. 

JISA accounts holding between £75,000 and £99,999 have grown to 2,400, while 11,800 accounts have accumulated more than £50,000. 

This represents a relatively healthy proportion of the 2,170,000 Junior ISAs active in the country today. The average value of £4,370 held in these accounts still represents a substantial windfall that can help to provide a degree of financial stability when a child turns 18, paving the way for a route into investing as an adult or funding early life goals. 

Stocks and Shares Lead the Way

Although parents are twice as likely to open a Cash JISA than a Stocks and Shares one, evidence suggests that the account holders who have reached £100,000 will have been investors rather than savers. 

Junior ISAs are tax-efficient and carry a £9,000 annual tax-free allowance that can be paid into accounts each tax year, with all interest, returns, and dividends earned entirely free of tax. 

Saving using Cash ISAs, which carry a fixed rate of return, throughout childhood would mean that a total of £85,636 could have been deposited into the account when considering historical limit changes. This would make it extremely difficult for cash accounts to reach six figures, while stocks and shares have benefited from a relatively prosperous period for markets. 

However, for many parents, the speculative nature of markets represents a higher level of risk that is too unpredictable to take on board when saving for their children, despite evidence that many account holders are benefiting from higher returns. 

Benefiting from Tax Efficiency

The great thing about a Junior ISA is that you can open an account as soon as your child is born. This means that deciding when to open a JISA is entirely up to you. 

Junior ISAs work in a very similar way to traditional individual savings accounts. Any money you decide to add is subject to a capped tax-free allowance, but you get to keep all of your earnings away from the clutches of the taxman.

While this means that you can make the most of growing your Cash JISA by reinvesting your returns, it’s possible to benefit from compounding your earnings with a Stocks and Shares JISA as your investments grow.

This can also help to provide a valuable and relatively straightforward entry point into investing for your children, who are able to manage their JISA from age 16 before gaining the ability to withdraw or move their money two years later.

Alternative Ways to Save £100,000

With 400 children accumulating £100,000 in their JISAs so far, it’s clear that saving for the future of your loved ones can really pay off. But are there other efficient ways to make a six-figure windfall?

Another way to build a sizeable nest egg for your child’s future is to buy premium bonds sold by National Savings and Investments (NS&I).

Premium bonds offer a higher degree of flexibility in that you can buy up to £50,000 worth of bonds with no annual allowance. 

Each bond costs £1, and monthly prize draws mean that holders can win between £25 and £1 million. 

This can make for an engaging means of saving for your children’s future, but it also involves a degree of luck. There’s a chance you could earn no money on the bonds you hold.

However, the greater flexibility of premium bonds means that you can buy and sell your bonds at any time, without having to wait until your child turns 18, as in the case of JISAs.

Building a Nest Egg

Ultimately, the best way to save for your child’s future depends on the way you plan to manage risk on their behalf.

With more child savers reaching account values in excess of £100,000 with JISAs, it’s clear that you can build a sizeable nest egg for when they become adult, but with different tax-free strategies available, it’s worth exploring your options.

As a parent, nothing is more important than looking out for your child’s future, and saving early can help to give them the perfect start in life.

By Dmytro Spilka

Keywords: Finance, FinTech

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