PARENTS planning to buy the latest must-have toys for Christmas could end up giving children a £3,000 windfall when they turn 18 if they stash the cash away instead.
Experts at financial firm AJ Bell say that rather than spending £100 each year on toys, which is the same price as the latest LOL Surprise Doll Glamper Fashion Camper, parents could put this cash into a Junior Isa (Jisa).
A Junior Isa might sound scary but it's simply an individual savings account for under 18s where any interest or gains made are tax-free.
You can opt for a cash version or a stocks and shares one.
But AJ Bell says that if mums and dads choose a Stocks and Shares Jisa and put in £100 each Christmas from when their child is born, there could be £3,008 in it by the time their child is 18 – based on typical growth of 5 per cent after any fees.
And the more you save, the more cash you could end up netting.
How should I invest my child's Jisa?
IF you're saving into a Stocks and Shares Jisa you have a number of different options.
You can opt to buy individual shares in big companies and manage this yourself – but this can be a risky strategy for beginner investors.
Another option is to buy funds. Funds can be roughly split into two types – passive and active.
Active funds have a manager at the helm who invests in the shares of a wide variety of companies and monitors their performance.
These funds can then be broken down into different specialities, for example UK companies, world wide companies, companies in emerging markets, property, bonds (company debts) and more.
Passive funds, meanwhile, track a stock market index, for example the FTSE 100, which is an index of the 100 largest UK companies.
AJ Bell says popular funds among its Junior Isa holders include passive funds from AJ Bell and Vangaurd's Lifestrategy range and actively managed funds such as BMO Global Smaller Companies, Fundsmith Equity, Lindsell Train Global Equity and investment trusts (another style of fund) F&C Investment Trust, Scottish Mortgage, and Witan.
Of course, always do your research before investing and check for fees – you'll usually be charge a fee by both the fund and the investment platform you use to manage the Jisa.
Use a comparison tool, such as Money.co.uk, to compare accounts and fees.
If you're unsure, consider getting independent financial advice.
AJ Bell reckons parents putting away £100 at every birthday and Christmas from birth could end up with £6,016 when their child turns 18.
While putting £50 a month away could result in £18,050.
And stashing the maximum current Jisa allowance of £4,368 a year away (assuming it increases by 2 per cent inflation each year) could see your child net a whopping £131,397 at 18.
Of course, as this is an investment Isa rather than a cash one it does mean your money can go both up and down and there's no guarantee there will be anything left at 18.
You also need to check for any fees and make sure these don't outweigh any gains.
But the idea is that saving over a time frame of ten years or more should give you time to ride out any stock market falls and leave you with a bigger windfall than you'd get with cash.
For example, AJ Bell says that save the same £4,368 a year in the highest paying Cash Jisa – 3.6 per cent with Coventry Building Society – and you'd have a smaller £114,000 by your child's 18th.
Laura Suter, personal finance analyst at investment platform AJ Bell, said: “While your child isn’t going to write to Santa asking for a contribution to their Junior Isa, their future self will thank you more than giving them the latest must-have toy.
"Parents often lament the sea of plastic toys they end up in after the Christmas period, so they could leave the present buying to others and instead put some money away for their child’s future."
It's not just Jisa's parents need to think about – two million 16-year-olds could have up to £4,500 FREE cash in lost child trust fund accounts.
We helped one mum track down her 13-year-old son's £800 missing child trust fund.
Also check out our guide to the top Cash Isa accounts.
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