How Your Child Can Benefit from the New Junior ISA
It may have slipped under many peoples radar that the CTF, or Child Trust Fund has ended and it has been replaced by a new Junior ISA. One group who will be fully aware of the changes that have gone on are new parents, who may find themselves with children who have CTF and one who, due to being born after the 2nd January 2011, has not. Most parents will not want their youngest child to miss out, but some of the information concerning the junior ISA is very confusing.
It is basically being run in the same way as an ordinary adult ISA with a few variations due to it being for children, and the fact that it is other people who will be investing the money in it, not the child themselves. To start with, the yearly allowance is invariably less than an adult ISA. This is currently £3840 per year, but is set to rise in line with inflation every April from 2013.
Once the money has been placed with a Junior ISA provider it is locked away until the child reaches 18 when they will take responsibility of the ISA and reap any benefits gained over the years. It has been estimated, with the projected growth figures that the government have anticipated, that if a junior ISA was started now, and the maximum amount invested every year, the child would receive in the area of £100,000 when it is 18.
This may seem like a huge amount now, but it will be worth considerably less in 2030. If parents are looking at this as a sort of university fund to pay for their child's further education, it is arguable whether this will cover the costs of a degree course in 18 years, so a back up savings plan could also be worth thinking about. This is all supposition obviously as the child may not want to go to university, or be able to, then you have to look at what else they can spend the money on.
It is unlikely that they will be able to buy a property, but they will be able to put down a deposit, and this could be an early step onto the property ladder. One thing they will be able to get out of their lump sum will be a car, but will more than likely keep what is left over to pay for their insurance the way prices are rising. As an adult ISA can be opened at 16, this two year gap could top up the pot so there is a larger gain once they hit 18.
Overall, there are several ways that a child can benefit by having money invested on their behalf in a junior ISA, and it's hard to say exactly what that gurgling bundle will want to do with the money in 18 years. The best thing a parent can do during this time is teach their child to be responsible with money, as a lump sum at any age can make the recipient go a bit mad and blow the lot.