Young savers are losing thousands of pounds because they don't invest in their future is warned today.
Investment experts urge regulators and industry to act now to ensure that children get the most out of their savings. The Financial Conduct Authority (FCA) already warns that pension savers should not leave their nest egg on poorly paid cash accounts.
Still, millions of pounds languish in normal child savings accounts – most pay well below inflation and only 0.05 percent.
Wasted: Still, millions of pounds languish on normal child savings accounts – most pay well below inflation and only 0.05 percent
Experts also say that while the stock market has been hit hard by the virus crisis this year, history has shown that it continues to recover.
Junior Isas (Jisas) were launched in 2011 and offer families who want to build a nest egg for teenagers valuable tax-free packaging.
The money can be invested in stocks or cash. It will then be locked away until the child is 18 years old (although children 16 and older can manage their account themselves) and all earnings are not taxed.
Figures released by the HMRC last week show that 70 percent of parents still choose cash jisas over the exchange.
Chancellor Rishi Sunak has more than doubled the annual limit parents can pay into a Jisa this year, from £ 4,368 to £ 9,000.
It is hoped that the move will encourage families to provide more money for children who would benefit from a university fund or a helping hand on the property ladder.
But Scottish Friendly wants the industry and FCA to do more to encourage parents to invest, as numbers show that families who have a pot are almost a third larger than those who stick to cash.
Great way to save for our son, 12
Full allowance: Peter Williams and his wife Pilar with their 12-year-old son Oskar
Peter Williams and his wife Pilar saved the 12-year-old son Oskar the full annual allowance for a Junior Isa every year.
The couple, who live near Stirling in Scotland, invest a lump sum each April at the beginning of the tax year.
Peter, 68, says: “Junior Isas are a great way to save for children. We haven't thought about the cash version of Isa for a moment. In the long term, the stock exchange is the right place. & # 39;
Peter, who works part time as a non-executive director, has decided to increase his investment in Oskar to reach the new annual maximum of £ 9,000. "It was a good opportunity to use a larger tax authority," he says.
Peter and Pilar, who run an online technology magazine, started saving for Oskar about eight years ago. The pot, which was intended for university education or a deposit, started as a trust fund for children and was later transferred from Peter to a Junior Isa.
Most of the money is invested in only one fund – Fundsmith Equity, which is operated by Terry Smith. The equity fund has converted £ 10,000 to £ 24,300 in five years.
Peter adds: "One day when he was eating tomato ketchup, I explained to Oskar that I was investing money in a company that could do it – Unilever – that would pay me dividends if it went well."
Today's analysis of the mutual company shows that mothers and fathers spend more than four times more money on cakes and cookies than they invest on their children.
Data from the Office for National Statistics shows that the eight million British households with children spent a total of GBP 1.6 billion on sugary treats in the 2017/18 financial year.
By comparison, Treasury numbers from the same year show that parents only invested £ 387.8 million in Junior Isas' investment.
A Scottish Friendly poll also shows that only 6 percent of parents and grandparents who save for a child use a stock jisa – compared to 27 percent who have a cash jisa.
Around 37 percent use a normal savings account and 26 percent use a checking account.
It is because the savings rates were in free fall. The average cash Junior Isa now only pays 2.06 percent – after 2.46 percent in the previous year.
A Scottish Friendly poll shows that only 6 percent of parents and grandparents who save for a child use a stock jisa, compared to 27 percent who have a cash jisa
Interest rates on normal child savings accounts continued to fall after the Bank of England cut interest rates to an all-time low of 0.1 percent.
Neil Lovatt, commercial director of Scottish Friendly, says there should be more warnings for parents to keep savings in a cash account for extended periods of time.
He says: “The most worrying thing is that people continue to choose cash instead of investment for their children's long-term future.
How to start
A Junior Isa can be opened online in any fund supermarket such as AJ Bell, Fidelity, Interactive Investor or Har-greaves Lansdown.
Tax-efficient accounts can only be opened by parents, but friends and family can deposit.
When it comes to choosing the facility because it is long term – up to 18 years if you start early – you can afford to take a higher risk first.
Platforms offer a reduced selection of funds. Many also offer risk assessments for funds. The fees vary between providers. The cheapest Junior Isa provider can be found on the compare website compare theplatform.com.
& # 39; The FCA has already established rules to warn those who choose cash as a long-term investment for adults, but there are no equivalent warnings to what I would call impending market failure when it comes to child savings.
"The supervisory authority should be alive and try to steer people in the right direction."
Jisa's cash rates are currently between 1 and 3.25 percent.
Investment broker AJ Bell's amounts show that parents who saved £ 100 a month for 18 years would have a £ 26,862 fund at an average rate of 2.25 percent.
But parents who invested the same amount in Jisa stocks and shares – and had an average annual return of 5 percent after fees – would instead have a fund worth £ 35,447 – 32 percent more.
Tom Selby, AJ Bell senior analyst, said: "Given that the FCA is clearly focused on keeping people out of the retirement market from cash, it would make sense for the regulator to focus on the Junior Isa market as well. "
Lord Lee of Trafford, the first British investor to make a million dollars with Isas, also supports the call.
He says, "UK Isas are probably the most attractive tax-free opportunity in the Western world, and all historical evidence shows that Isas stocks and shares undoubtedly beat Isas cash, certainly over a reasonable period of time."
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