Junior ISAs could create £34,000 savings pot

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Parents' biggest worry is that their children will struggle financially in the future, but this doesn't mean they will do anything about it.

That's a shame, because by putting aside less than £100 a month they could build up a £34,000 savings pot for their kids by the time they reach adulthood.

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94% of parents are worried about their children's financial future, according to a study by JP Morgan Asset Management. Despite this, only a third of parents (35%) would consider opening a Junior ISA for their child as a way to start saving for their future.

But previous research shows that the likely average contribution into a Junior ISA would be £1,117 a year (£93 per month), which could mean a savings pot worth over £34,000 by the time the child turns 18.

The study revealed parents' biggest concern for their child's future is that they are able to enjoy life without struggling financially, with over half (57%) citing this as a worry. Their second and third largest concerns are unemployment and the rising cost of living, 56% and 53% respectively. Nearly a fifth of parents (22%) worry the level of savings their children will have accumulated when they reach adulthood will not be enough, particularly among those with offspring under five.

What is a Junior ISA?
The Junior ISA was launched last November as a replacement for the Child Trust Fund. The accounts offer parents a tax-free way to save for their kids.

Your child can have a Junior ISA if they are under 18, live in the UK and don't already have a Child Trust Fund account.

Each child can have one cash and one 'stocks and shares' Junior ISA at any one time. Anybody - parents, grandparents, aunts, uncles and family friends - can put money into a Junior ISA, up to £3,600 in each tax year. The main advantage over other savings or investment products is there will be no tax to pay on any interest or gains.

The money in a Junior ISA belongs to the child, but they can't take the money out until they are 18. They can then decide what they want to do with it. If they choose not to take the money out, the Junior ISA will automatically become an ISA.

Keith Evins, Head of UK Marketing at JP Morgan Asset Management, said: "With recent figures showing youth unemployment in the UK currently standing at 22%, it is unsurprising such a high proportion of parents are concerned about their children's future, particularly from a financial perspective. However, it is alarming that in spite of this only 35% of parents are considering opening a Junior ISA. It is important parents understand there are few tax efficient ways of saving and investing for the long term and a Junior ISA is one of the simplest."

The study also highlighted that among those parents who would consider opening a Junior ISA over a third of parents would sacrifice their own ISA contributions in order to do so. One in 10 would use up to 50% of their current ISA contributions, and a further 16% would use 25% or less of their current ISA contributions to pay towards a Junior ISA. One in 20 would even go to the lengths of stopping investments in their own ISA to pay into a Junior ISA.

Keith Evins added: "The fact that parents are willing to sacrifice some of their own ISA contributions to help fund their child's future shows their commitment to investing for the future of their children. However, with minimum contributions from £50 per month, such sacrifices could be achieved. In addition, previous research by JP Morgan Asset Management showed nearly half of adults in Britain (43%) would contribute to a Junior ISA for the child of a family member or friend. Such additional contributions could help enhance the savings parents are able to make."

How to find an ISA
JP Morgan's Junior ISA offers access to investment funds from over 30 UK asset managers from £50 per month with no initial charge or annual account fees. Of the cash ISAs, Nationwide's Smart Junior ISA pays 3% interest, including a 0.9% bonus until October 2013 when the interest rate will drop. Also at the top of the table, Skipton's junior ISA pays 3% and even better, this doesn't include a bonus.

Last week Halifax launched a Junior Cash ISA with 3% AER variable rate, and said it would boost this variable rate to an unrivalled 6% AER when the parent also has their own ISA with Halifax. And Lloyds TSB became the first of the major highstreet banks to launch a Junior Cash ISA that also pays 3%.

The Compare Junior ISA website has more information on the best stocks and shares and cash ISAs.

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