Ditch the presents this Christmas and use the Junior ISA to give your child £3,000

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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

While your child isn’t going to write to Santa asking for a payment into their Junior ISA, their future self may thank you more than giving them the latest must-have toy. Parents often lament the sea of plastic toys they end up in after the Christmas period, so they could leave the present buying to others and instead put some money away for their child’s future.

For the price of the latest LOL Doll Glamper fashion camper or Lego set every Christmas, parents could instead hand their kids £3,000 on their 18th birthday*. If you paid in the full ISA allowance, currently £4,368 a year, every year until they turned 18 they’d have a pot of more than £131,000** on their 18th birthday.

Lots of parents keep their children's Junior ISA accounts in cash, but it could be the ideal home for long-term investments with the money locked up for up to 18 years. The top Junior ISA cash rate at the moment is 3.6% from Coventry Building Society, or 3.25% from NS&I if you want an account you can access online***. Putting the full annual limit into the top cash account every year would give your child £114,000 on their 18th birthday – more than £17,000 less than could potentially be achieved by investing it. Parents putting money in cash accounts also need to keep an eye on it to make sure the interest rate isn’t slashed, or that they could switch accounts if it is.

The luckiest child with AJ Bell is an 11-year-old who has around £110,000 in their Junior ISA, after a mixture of sizeable annual contributions and some savvy investing. But the average Junior ISA pot with AJ Bell is a more relatable £9,000.

Parents are generally investing in a mixture of active funds and passives in our Junior ISAs. A number have plumped for lower cost all-in-one funds, such as Vanguard Lifestrategy or AJ Bell’s passive funds, which spread the money across different markets and assets. Investment trusts are also very popular, with Scottish Mortgage, F&C Investment Trust and Witan among the most popular trusts. Among funds Fundsmith Equity, Lindsell Train Global Equity and BMO Global Smaller Companies are the most popular.

You child isn’t going to be able to parade their Junior ISA account around the playground and show it off to their friends, so understandably might be a bit disgruntled at the gift. To avoid tears before the turkey dinner, firstly, you could agree with grandparents and other family that they all buy one fewer present and contribute some money to the JISA instead. Or you could get them to still give presents, meaning your kids will have something to unwrap, while you gift money.

What your money could grow to:

Amount paid in Size of pot on 18th birthday
£100 each Christmas £3,008
£100 at Christmas and £100 on their birthday £6,016
£50 a month £18,050
Full JISA allowance every year**** £131,397

Source: AJ Bell. All figures assume the pot grows by 5% a year after fees, and that contributions start at birth.

Most popular Junior ISA investments, by age group:

0-6 year olds 7-12 year olds 13-18 year olds
Vanguard Lifestrategy Funds Vanguard Lifestrategy Funds Vanguard Lifestrategy Funds
AJ Bell Funds AJ Bell Funds Fundsmith Equity
Fundsmith Equity Fundsmith Equity AJ Bell Funds
Scottish Mortgage IT Scottish Mortgage IT Scottish Mortgage IT
iShares MSCI World ETF F&C IT F&C IT
Vanguard FTSE All World ETF Lindsell Train Global Equity Lindsell Train Global Equity
Lindsell Train Global Equity iShares Core FTSE 100 ETF Witan IT
Vanguard FTSE 250 ETF Witan IT iShares MSCI World ETF
Vanguard FTSE 100 ETF Vanguard FTSE All World ETF BMO Global Smaller Companies IT
iShares Core FTSE 100 ETF iShares MSCI World ETF iShares MSCI World ETF

Source: AJ Bell. Based on AJ Bell Youinvest accounts.

* Based on £100 contribution every year and 5% a year growth after fees.
** Assumes the full Junior ISA allowance is contributed every year, and that the allowance itself increases by 2% inflation each year, with your pot growing by 5% a year after fees.
*** Based on data from Moneyfacts
****Assumes the full Junior ISA allowance is contributed every year, and that the allowance itself increases by 2% inflation each year

These articles are for information purposes only and are not a personal recommendation or advice.

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Written by:
Laura Suter

Laura Suter is head of personal finance at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.