Invest in a Jisa to help give your child a £70,000 savings habit

The calculation from online provider Wealthify assumes the cash is invested in an adventurous fund with a 5.54% annual return on £20.70 a week – the equivalent of the child benefit payment. That would reach almost £30,000 over 18 years and, if followed by a continuing injection of £90 a month by the young adult over the following 12 years, would grow to £70,000.

Michelle Pearce-Burke, chief investment officer and co-founder of Wealthify said: “With the cost of higher education and property set to continue rising, parents who plan to help their children with these major life expenses will need to start thinking sooner rather than later where the money will come from.”

Reflecting a growing trend, the digital platform, which is now backed by insurance giant Aviva, offers an ethical investment Jisa option on its menu of ready-made funds.

Of the 907,000 Jisas paid into in the last tax year, only 271,000 were stocks and shares versions, according to HMRC, with an average subscription of £1,421 (£27 a week). The majority were cash Jisas, with an average deposit of £813 (£16 a week).

The rates on offer for cash Jisas are far better than for adult accounts. While the best standard cash Isa or instant access rates are currently around 1.5%, TSB pays 3.25% on its Junior Isa, as does Santander to premium customers, while 3.15% is on offer at Tesco Bank and 3% at Halifax, according to Moneyfacts.

But even those rates are meagre once underlying inflation, which currently stands at 2.5%, is factored in.

Patrick Connolly, chartered financial planner at independent advisers Chase de Vere, said: “Parents and grandparents should ideally start saving as soon as possible, and while many don’t want to take big risks with children’s investments, if they are investing regular premiums over a long period they should be in the stock market.”

Investment decisions surrounding the Jisa become the child’s from the age of 16, and they gain access to all the money at 18 when it becomes their property.

Adrian Lowcock at investing platform Willis Owen said: “It is important that families using Jisas discuss them with their children as early as possible. However, our research has shown that 80% of parents plan to wait until their children are 16 or over before telling them they have money invested, which is surprising, given the importance of teaching them about the value of saving and investing.”

Mr Lowcock said the UK Smaller Companies sector, currently buffeted by Brexit uncertainty, is ideal for the long-term investor.

“UK smaller companies offer exceptional long-term growth prospects and are particularly attractive when investments are run by an excellent active manager, while the global equities sector offers added diversification benefits, giving access to the best companies in the world,” he said.

Despite this, fund platform Interactive Investor said its Jisa investors are typically looking beyond the UK, with four of its five most popular funds investing globally while the fifth is a UK fund. Its average Jisa also has 17% invested in investment trusts compared to 12% for the average Isa, with parents twice as likely to invest in exchange traded funds for their child as for themselves.

Rebecca O’Keefe at Interactive Investor said: “With up to an 18-year investment horizon, a Jisa is likely to have enough time to ride out market turbulence – added to which at age 18, it simply converts to an adult Isa and doesn’t need to be cashed in immediately.”

Jisas and their predecessor Child Trust Funds (CTF) are held by around six million children. However, a study by Scottish Friendly last year suggested that up to 1.5 million CTFs were unclaimed as parents had lost track of them.

Share Foundation chair Gavin Oldham said: “When launched, the CTF was a significant initiative designed to help children get into the habit of saving and help them understand personal finance. However, unless young people connect with their CTF its impact will be lost.”