Important information - the value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Back in 2008, my eldest child was the lucky recipient of a £250 voucher from the government as part of The Child Trust Fund savings scheme. This scheme ended on 2 January 2011. Since then, the onus has been on parents (as well as grandparents and other close relatives) to think about the financial security of the children in their care.
But the rising cost of living, however, and growing financial pressures means it’s more difficult than ever to build a financial security blanket.
New research from Fidelity International reveals that three in five (61%) UK adults say helping their children or grandchildren achieve financial stability is a long-term financial goal, yet one in five (19%) of those admit they are not confident they will achieve this goal1.
Supercharge a child’s savings with a Junior ISA
Sticking money in a bank savings account remains popular (especially as interest rates have been higher for longer, meaning savers have been able to get a reasonable rate of return for a comparatively low level of risk).
However, if you are prepared to take investment risk, then there could be a more powerful way to secure longer-term financial goals.
If you can invest the full Junior ISA allowance (which currently stands at £9,000 per year, or £750 each month), based on 5% annual growth it has the potential to turn into a whopping £243,561.40 once they turn 18 (it could fall in value too).2 That's some birthday present.
Of course, for most of us, that's not affordable - even with loved ones chipping in. But let's say you could afford to put away £55.50 a month in a Junior ISA (which isn't much more than a cinema trip for two, including snacks). That still has the potential to turn into £18,024 by the time the child turns 18 - assuming a modest annual growth rate of 5% (which isn't guaranteed). That's a pretty healthy nest egg by any standards.
Tax-efficient junior accounts
At Fidelity, we offer fee-free Junior ISAs (JISA) and Junior Self-Invested Personal Pensions (JSIPP). Both are tax efficient, as you don’t pay income or capital gains tax on investments held in these accounts. The JISA allowance for the 2024/25 tax year is £9,000 and the deadline to use it is 5 April 2025.
When the child turns 18, the money is theirs. They can either invest in what matters to them or use it. We don’t charge service fees on Junior ISAs, ensuring that every pound invested goes directly towards building a brighter financial future for the next generation. It’s worth noting that ongoing fund charges and other fees may apply depending on your choice of investments.
And while only a parent or guardian can open a junior account for the child, anyone can pay into one. Great news for grandparents, aunts, uncles and godparents if they want to gift money for birthdays and Christmas. You can find out more about gifts and inheritance tax if you scroll down on this page about passing on your wealth
5 tips to help you save for your child
Be realistic about how much you can afford
Even small amounts can make a difference. For instance, contributing £25 a month from birth could result in a pot of £8,119 by age 18 (again assuming a 5% annual growth). Increasing that to £30 a month could grow the pot to almost £10,000 (£9,742) over the same investment timescale. The value could fall of course too.
Mix up your investments
A well-diversified Junior ISA portfolio could help reduce risk. Consider funds that invest across different sectors or regions to balance exposure (we’ve got some links to some investment ideas to help you get started below).
Make use of the full allowance if possible
If your budget allows, maximising the annual Junior ISA allowance of £9,000 can accelerate growth significantly. A £750 per month contribution from birth would add up to a total of £162,000. Based on an annual growth rate of 5% this investment has the potential to turn into £243,561 (although this isn't guaranteed). That's a potential return of £81,561.40 So, if you can afford to invest the full allowance from birth to age 18, it could result in a pot worth £243,561.
Stay invested
Market fluctuations can be unsettling, but you have a lot of time to invest for your child if you start as soon as they’re born. Sticking to regular contributions can help smooth out short-term volatility and maximise long-term growth potential.
Get help with choosing investments
It can feel daunting when you start investing and aren’t sure what to invest in. Here are a few links to help you narrow down your options when you open a Junior Account.
- How to choose investments.
- Top 10 best-selling ISA and SIPP funds in January
- Ten for 10: Funds to buy and hold for a decade
- Index fund ideas from our Select 50
Source:
1 The Fidelity Global Employee Sentiment Survey, 2024 was fielded to 37,000 workers in 34 markets. (UK Workers Sample of 1000). The data collection, research and analysis was completed in partnership with Opinium, a strategic insight agency. Data collection took place between June and September 2024.
2 The examples use fixed assumptions whereas actual returns from investments will be variable and depend on many factors and values can fall as well as rise meaning investors could get back less than they put in. The assumptions used are a 5% growth rate per annum, less a 0.75% annual management charge (net 4.25%). Fidelity Personal Investing does not charge a service fee for Junior products. The assumptions do not take inflation into account which would reduce the buying power of the figures shown.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Junior ISAs are long term tax-efficient savings accounts for children.Withdrawals will not be possible until the child reaches age 18. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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