How a Junior ISA can help your child graduate debt-free (or buy a house)

Laura Suter
1 March 2019

“With the cost of university soaring and house deposits rising, many parents will want to start saving early to build up a tidy savings pot for their children,” comments Laura Suter, personal finance analyst at investment platform AJ Bell. 


“The average cost of university debt is now around £50,000, while the average property price in London is now almost £480,000 – making a 10% deposit close to £50,000. 


“By using a Junior ISA and stashing cash away in the early years of your child’s life you can hand them a pretty impressive 18th birthday present. With a Junior ISA the money grows free of tax and any withdrawals are also free of income tax. 


“One downside for some parents is that the money becomes the child’s at age 18, meaning they can splurge it down the pub or on a holiday of a lifetime, but figures from AJ Bell customers show just 7% of Junior ISA customers cash out on their 18th birthday – showing many teenagers are more savvy than some might expect.”


But how much do you need to save to get to £50,000? We take a look:

The Organised Early-Saver
Parents who remember to open a Junior ISA during the sleep-deprived first months of having a newborn baby will benefit from a longer time period for the pot to gather returns, reducing the amount they need to invest each year. 
Someone who opened a Junior ISA in the first year of the child’s life will need to pay in £1,900 a year until they reach age 18 to get to the magic £50,000 figure. Assuming 4% growth after charges each year, they would end up with a pot of £50,675 on the child’s 18th birthday.
If you have more disposable cash and want to put in the full Junior ISA allowance (we’ve assumed £4,260 each year, although this will increase with inflation) you will need to contribute the full annual allowance for the first seven years of the child’s life. Then you can leave the pot to grow, and assuming the same 4% growth figures, it will reach £53,870 by the time they reach the age of 18.

The School-Starter
The early years of a child’s life are expensive, from kitting out a nursery to paying for childcare, so many new parents may not be able to find the spare cash to stash in an ISA. If they start saving when the child starts school, age 5, they need to put £2,900 a year away until they reach the age of 18 to have a pot to pay for university. On the child’s 18th birthday they will have £50,147, assuming that same 4% growth after charges as before. 
If they start saving at the age of five but want to put the full Junior ISA allowance in, they only need to pay in until the child reaches the age of 13, at which point they will have contributed £34,080, which will grow to £49,667 by the time they reach their 18th birthday.

The Last-Minute Larry
What about if you totally forgot to open the Junior ISA, or just haven’t had the spare cash to put money away? Well the good news is that you can start saving when they are eight, put the full £4,260 allocation away each year and still reach the crucial sum by their 18th birthday – when you will have a pot of £53,192, assuming 4% annual growth.

Junior ISA returns at age 18

 

Starting age

Annual investment required

Fund value at age 18

The Organised Early-Saver

0

£1,900

£50,675

The School-Starter

5

£2,900

£50,147

The Last-Minute Larry

8

£4,260

£53,192

Assumes 4% investment growth per annum after charges
 

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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