Millions of children are missing out on tax-free savings
Junior ISAs (JISAs) are one year old in November. So far little interest has been shown in these tax-free savings accounts for children.
The most recent figures from HMRC show just 71,000 accounts have been opened yet 6 million children are eligible for a JISA.
But parents are missing a trick. The tax-breaks on JISAs mean that children can earn tax-free interest on their savings and once they turn 18 all of the cash or investments in their JISAs can be transferred into a tax-free ISA for life. JISAs are therefore a great way to give your child a head start in saving.
Abigail Montrose, savings expert at MoneyVista said: "JISAs are a great way for parents to save for their children's future. They not only can give them a good financial start but also introduce children to financial planning from an early age.
"That said, parents shouldn't choose an investment for the tax breaks alone. JISAs are just one way to save for your child's future and should only be used if they offer the best value for money and fit in with the rest of your financial planning.
"Other options include parents ring fencing some of their own savings or investments for their children or dividing up their savings into different pots for various uses. For example, if you haven't used up your own ISA allowance, and ISA rates are better than JISA rates, you may want to use this first to save for your child's future. Using your own ISA allowance also means you can keep control of the money after your child's 18th birthday if you want to."
How JISAs compare
Cash JISAs - Around 30 financial institutions, mainly regionally-based building societies, offer cash JISAs. Rates range from 2 to 3% - similar to the rates on other children's savings accounts. But there are some better deals around. For example, Nationwide and Coventry building societies offer 3.25% and Halifax pays 6% so long as the parent or guardian of the child has a Halifax cash ISA.
Regular children's savings account - West Bromwich Building Society offers 4.6% on its regular children's savings account, and there are a number of standard savings accounts and bonds open to adults and children alike paying more than 3%
Stocks and shares JISAs - So far 26 investment companies are offering these and the choice of funds is limited.
When comparing returns on JISAs with taxable savings accounts, it's important to remember the tax implications. Interest earned on savings is usually taxed at 20% but with a JISA there is no tax to pay. This means that to match a JISA paying 3% interest, a basic-rate taxpayer would need a taxable savings account which paid 3.75%.
For more on whether JISAs are too good to be overlooked see MoneyVista.com.