Parents are throwing away £4,000 of their children’s future wealth by saving in cash Junior Isas that pay low interest rates rather than investing in the stock market. Even the top cash savings accounts will cost youngsters thousands of pounds by the time they reach 18.
Based on the average of £846 a year saved into a Junior Isa at 2pc, the average rate, a child’s savings would grow to £18,453 by their 18th birthday. However, using a stocks and shares account would produce £4,045 more – £22,498, assuming modest returns of 4pc each year. Even the top cash Junior Isa, which pays a rate of 2.4pc, would grow only to £19,190, or £3,308 less.
Yet hundreds of thousands of parents have avoided investing on behalf of their children. There were 706,000 cash Junior Isas in the 2019-20 tax year, compared with just 317,000 stocks and shares Junior Isas, according to HMRC.
Families’ hesitancy to invest their children’s money will cost the next generation a collective £2.3bn, according to the wealth manager Brewin Dolphin.