PARENTS Hamish McAlpine and his partner Sarah have amassed a very impressive nest egg for their three children.
In total they’ve saved £180,000 in ten years thanks to some serious saving into Junior Isa accounts.
The couple’s first child, Abigail, arrived in April 2011, just weeks after the creation of Junior Isas were announced in April 2011.
Then chancellor George Osborne introduced the innovative new accounts to replace Child Trust Funds and encourage families to save for their children.
The accounts were officially launched 10 years ago today in November 2011 and Abigail was one of the first to get one.
Hamish’s parents told him about the tax-free savings accounts and set one up for their grandchild, investing the maximum allowance at the time of £3,600.
They invested the money into the Fundsmith Equity fund, which invests in the shares of some of the biggest companies around the world.
They continued to invest the full Isa allowance for Abigail each year, and when Hamish and Sarah’s second child William arrived two years later, they did the same for him.
The Junior Isa allowance went up to £4,000 in 2014, and reached a massive £9,000 in 2020.
This meant they were saving up to £750 a month.
This might not be achievable for most families – but Junior Isas ARE still a great way to save for your children’s futures.
This is because while savings rates are rubbish there are some semi-decent ones for Junior Isa accounts.
We explain everything you need to know.
What are Junior Isas?
Junior Isas are accounts designed to help you save for your children.
Currently you can save £9,000 a year into the accounts and any interest you earn and gains made are tax-free – just like an adult Isa.
The accounts were brought in to replace Child Trust Funds.
If you have an old Child Trust Fund you can transfer it in to a Junior Isa and likely get a better return.
You can open a cash Junior Isa and the interest rates on offer are typically better than you can get on an adult savings account.
Or you can invest the money and it will potentially grow at a much faster rate.
Junior Isas can be opened from birth up to age 16. At age 16, the child can take control of the money and choose where it is invested but they can’t make a withdrawal.
At age 18, they will have access to the money and can either keep saving or withdraw the cash.
In the 2018/19 tax year, a hefty £954 million was saved into Junior Isas, the majority of which was put into cash accounts.
The average amount put into a Junior Isa that year was £1,020, according to latest Government figures.
In total, parents and grandparents have squirrelled away a staggering £4.87bn saved into Junior Isas.
If you had saved the maximum amount into a Jisa since they were launched you would have put in £53,386.
If you had invested this in the FTSE All Share, your money would have grown to £74,469.
If you had invested £100 a month in the FTSE since the accounts were launched, you’d have £16,316, according to number-crunching by AJ Bell.
Investing for the future
Abigail and William were lucky enough to have their allowances maxed out every year by their generous grandparents.
But when baby Esme arrived a year ago, Hamish’s parents stopped putting money into the accounts of the other two in a bid to try and help the new arrival to catch up with her older siblings.
After 10 years of saving by their parents and grandparents, the three children have an incredible £180,000 saved between them.
Abigail’s account is worth £97,000 and William’s around £75,000.
Baby Esme, now aged 1 year, already has £10,000 in her Junior Isa.
Two years ago, Hamish moved the accounts to AJ Bell, an investment website which he uses for his own accounts.
He can now easily monitor all the accounts from an app.
All three children have half their money in the Fundsmith Equity fund, which invests in the likes of Microsoft, Facebook and L’Oreal.
It has been incredibly successful, and has delivered a return of 531 per cent since it was launched in November 2010.
But parents should keep in mind that investing is a risk and you should only look at investing if you already have cash savings and are happy to lose the money.
Getting into good financial habits
Hamish, 40, who is a civil servant, has now taken over contributing to Abigail and William’s accounts, but says it’s unlikely he and Sarah will be able to save the full £9,000 a year allowance for both of them.
He says: “I hope that they will use the money to support themselves through university or for a deposit on their first home.
“My parents were always very generous with me, and helped me with a house deposit, so I want to be able to do the same for my children.
“They don’t know about the accounts yet but we’ll talk them about it when we start having conversations in a few years about what they want to do with their lives.”
Hamish, who lives in Bath, is confident the kids will be responsible with the money though, and says Abigail and William are already very good at saving up their pocket money.
“We’re trying to instil good financial habits. But I also think it’s about trying to strike a balance between having a good life now and also saving for the future,” he says.
Hamish says his main incentive for saving is to help his children on to the housing ladder as he is concerned about property prices rising.
He also wants to make sure they have a decent pension pot, particularly as the state pension age is rising.
Indeed, he’s even set up a pension for the kids already, and they each have around £10,000 saved into these.
He says: “What we’ve found is that making modest contributions now, it can make a big difference later on.
“We’re in the lucky position where we can try and lay some foundations to help them in later life and it makes sense to do so.”
Hamish says he gets most of his financial know-how from his parents, who are long-time investors, as well as from a relative who is a financial adviser.
Top tips for parents
“I recognise that we’re in a fortunate position and can save decent amounts but even starting very small and waiting long enough means you can end up with a significant amount,” says Hamish.
Indeed, we calculated that if you saved £25 a month and it grew at a rate of 5 per cent a year, after 40 years you would have more than £38,000.
If you could set aside £50 a month, you’d end up with more than £76,000.
And if you made a one-off investment of £10,000 that grew at 5% a year, after 40 years it would be worth £73,584.
Do your research
There are thousands of shares and funds to choose from when investing and it can be overwhelming.
Investment websites have lists of their most highly-rated funds, which can help whittle down the options.
Check what sorts of things the fund invest in so that you’re not taking on more risk than you mean to, and compare the fees to other similar funds to make sure you’re not paying too much.
Hamish says: “I do my research, only invest in things I understand and then leave the money where it is – don’t trade regularly.
“I had faith in the Fundsmith funds but I am surprised just how much it’s gone up.”
Get the family involved
Hamish’s children are lucky enough to have generous grandparents who have made big contributions to their savings pots.
One of the perks of a Junior Isa is that friends and family can pay into the account – it’s not all just down to the parents.
Let people know you’re saving for the kids – they might prefer to contribute to the accounts at Christmas or birthdays instead of buying toys or clothes.
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