Maybe saving for your kids will get tougher as the cost-of-living crisis continues to creep in. But if you can afford £142 a month, those benefits could be well worth it
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If you are a parent, you may be wondering how you can help your child financially when they get old.
Have a lot of thrifty products designed for children, one of which is the Children’s Individual Savings Account (ISA).
Any money you put in Child ISA will be locked until your child turns 18 – after this point, it will become a regular ISA.
To open a scheme, your child must be under 18 and live in the UK. In the current tax year, you can only import up to £9,000 a year.
If you’re considering opening a Junior ISA, the experts at AJ Bell have put together the numbers to figure out how much you can save for your little one.
For families who can’t afford to spend up to £9,000, even saving £1,700 a year or £142 a month, assuming annual investment growth of 5%, could go up to £50,000.
This assumes you’re saving this amount from the birth of your child through their 18th birthday.
“Setting lower (and more realistic) goals is probably a better call,” says Laura Suter, head of personal finance at AJ Bell.
“The average student leaves university with around £50,000 in student loans and other debt, which brings in a huge number of parents to look forward to.”
To generate £27,000 at the age of 18, parents would need to spend £925 a year on the Junior ISA, assuming a similar return of 5% a year.
Making your child a millionaire through the Junior ISA will be a “fairly tall task” for some families – especially as the cost of living crisis continues to intensify.
“Someone with a child born today and fully contributing £9,000 a year to the Junior ISA from birth until they turn 18 would need to generate a 17.15% annual return on investment to earn it. their children £1 million by the time they are adults,” said Ms. Suter.
“To try to hit that £1m threshold, you could also save your kids into their pension. Even non-taxpayers have an annual pension cap and you can put up to £2,880 into the Junior SIPP each year, which will increase to £3,600 when the government cuts taxes.
“If you max out the Junior ISA and Junior SIPP allowances, meaning you’re saving £11,880 a year, the annual return you’ll need is 14.2% to invest in your kid’s $1 million pounds at the age of 18.
Have you used the Junior ISA to save for your child? Let us know: email@example.com
“However, the money in the Junior SIPP will be tied up until they are at least 55 years old, so they won’t be able to use it for decades to come.”
But even if you’re late opening a Junior ISA, there’s still the potential to save a decent amount for your child.
You just need to be in a position where you can save a little more later in life.
Ms Suter explains: “The average cost of part-time childcare in the UK is £138 a week, or £7,776 a year.
“If, when the child starts school, you put that money into a Junior ISA instead, you have saved £133,500 by their 18th birthday. Even if you pay half the cost, you’ll still save more than £66,700 by the age of 18.”
How to open ISA Junior
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There are two types of Junior ISA – Junior Cash ISA and Share Junior ISA.
A cash ISA works like a Regular tax-free ISA savings account in which you put your money and get back a specified amount of interest.
Junior ISA stocks and shares will see your return depend on the performance of the stock or stocks you have invested in. This means your money can increase or decrease.
Any parent can open a Junior ISA on behalf of their child and manage it until the child turns 18.
Right now, the top interest rate for Junior ISA Cash on Deposits of £9,000 is 2.50% from Dudley Building Society.
This was followed by 2.40% from the Family Building Society and 2.25% from the Coventry Building Society.
https://www.mirror.co.uk/money/junior-isa-how-turn-142-26302780 Junior ISA: How to turn £142 a month into £50,000 for your child's future savings