7 May 2024
Since the introduction of Junior ISAs in 2011, child savers holding cash have missed out on nearly £3.5bn in returns relative to those offered by investments, according to new analysis by wealth manager, Quilter.
Each year, parents and grandparents contribute around £530m* to their child or grandchild’s cash ISA. Assuming cash JISA returns of 2% since 2011, the value of these accounts stands at £5.6bn.
If instead the contributions were invested in a global index**, the accounts would be valued at £9bn meaning young savers have missed out on £3.4bn of value from excess cash savings.
Just under 40% of JISAs are currently allocated to stocks and shares, which is an improvement compared to recent years where just a third of accounts were stocks and shares accounts.
Quilter is urging any parents or grandparents wishing to gift to a loved one’s JISA to do so into a stocks and shares account.
Ian Futcher, financial planner at Quilter says:
“Given interest rates have been relatively high recently due to inflation, many heads have been turned by attractive Junior ISA cash saving rates. This is unsurprising given that cash continues to be king for UK savers. People perceive cash as risk free despite inflation decreasing its real terms value and choose not to face the potential volatility inherent to the stock market even though it has historically given better returns.
“There is nothing wrong with cash but especially when children have such long investment horizons, investing gifted money is much more likely to build long-term financial prosperity as savers will miss out on the miracle that is compound growth, and inflation may simply erode the real value of their savings.
“For JISAs, on many occasions the money will be locked away for up to 18 years, meaning any stock market volatility can be smoothed and the scope for compound growth is much greater.
“For anyone looking to use their children or grandchildren’s JISA allowance this tax year, putting this money to work should be a priority. Younger generations face significant financial hurdles such as building a deposit for a house or paying for further education and by investing we have an opportunity to give them a serious head start when they enter adult life. And that means avoiding the meagre returns on offer from cash products in favour of letting compound growth work its magic.”
*
|
Year |
Annual contribution to cash Junior ISAs |
|
2012/13 |
£294,000,000 |
|
2013/14 |
£431,000,000 |
|
2014/15 |
£405,000,000 |
|
2015/16 |
£522,000,000 |
|
2016/17 |
£525,000,000 |
|
2017/18 |
£517,000,000 |
|
2018/19 |
£555,000,000 |
|
2019/20 |
£597,000,000 |
|
2020/21 |
£610,000,000 |
|
2021/22 |
£631,000,000 |
**IA Global Sector
