Ten of thousands of families in the UK failing to ‘maximise returns’ on savings account

HUNDREDS OF THOUSANDS of Britons are missing out on the benefits of Junior ISAs by saving in cash instead. According to an update from NFU Mutual, around 700,000 families in the UK are failing to “maximise their returns” on Junior ISAs. Is your child missing out?

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Junior ISAs are tax-free savings accounts for young people aged under 18, or it can be managed by their parents. Launched in November 2011, these accounts allow families to invest money for their children without paying tax, however, the cash is locked away until the child turns 18. Families can either choose to invest in cash or stocks-and-shares, depending on their preference.

Currently, Junior ISA account holders can save or invest up to £9,000 this tax year, which is the perfect foundation for getting young people into saving.

This limit is a sharp rise from previous years, with the set amount being £4,368 for the 2019-20 tax year.

No maximum contribution is required to set up a Junior ISA account, any amount of money under the £9,000 thresholds can be accepted at any time.

Savers are only allowed to open one Junior ISA, and one Junior stocks and shares ISA, for the one person.

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ISA update: 700,000 families in the UK failing to ‘maximise returns’ on Junior ISAs (Image: GETTY)

However, financial firm NFU Mutual is reporting that many households across the country are not taking advantage of the potential benefits these ISA accounts can have on the pocket books of young savers.

According to the latest Government figures, more than a million people in the UK subscribed to Junior ISAs in the 2019/20 tax year.

Some 706,000 of these people decided to invest in cash, compared to 316,000 in stocks-and-shares.

Despite this, families who invested in shares are more likely to have seen much better returns over the long term.

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Chris Hood, Investment expert at financial advisers NFU, outlined why this is often the case for households who decide to invest their Junior ISA in shares.

He said: “The majority of families play it safe when it comes to investing for children and keep the money in cash savings, but families who invested their Junior ISAs in stocks and shares are likely to have made significantly better returns.

“Junior ISAs are locked away until the child turns 18, enabling families to benefit from the longer-term potential of the stock market.

“However, 70 percent of Junior ISAs were invested in cash in 2019/20.

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ISA update: Junior ISAs are tax-free savings accounts for young people aged under 18 (Image: GETTY)

“When money is locked away for such a long time, it can weather the bumps in the stock market.

“Not only does this approach have the potential to have a positive impact on the child financially, it can also teach valuable lessons to children that help them understand the benefits of long-term investing.”

As of today, the best Junior Cash ISA rate is currently at 2.5 percent with Dudley Building Society.

If it remained at that level of interest, this ISA account would return 28 percent over a ten-year period with interest paid annually.

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ISA update: What is an ISA? (Image: EXPRESS.CO.UK)

For a family investing £1,000 at the start of this ten years, Dudley’s Junior ISA at 2.5 percent per year would see their money rise to £1,280.

In comparison, both UK and worldwide equities would have beaten that return over the past 10 years, if a one percent per annum charge was placed on the investment.

Dudley’s ISA account also accepts transfers in from Child Trust Funds, as well as from existing Junior ISAs for those savers looking to move around.

Roy Walsh

Roy Walsh

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