How to give your children a head start using Junior ISAs

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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.

In theory it’s never been easier to make your child an ISA millionaire, with a hefty Junior ISA allowance, an early start and a strong wind of bumper investment returns, parents can hand their children £1m as an 18th birthday present.

More on Junior ISAs

However, someone who has a child born today and contributed the full £9,000 a year Junior ISA allowance from birth until they’re 18 would need to generate 17.15% investment returns every year in order to net their kid £1m by the time they reach adulthood – a pretty tall ask.

To try to make it more achievable to get to that £1m threshold, you could also save for your child into their pension too. Even non-taxpayers have an annual pension limit and you can put up to £2,880 into a Junior SIPP each year, which will be increased to £3,600 when Government tax relief is added. 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% in order to hand your child investments worth £1m at the age of 18. However, the money in the Junior SIPP will be tied up until they turn at least 55, (57 from 2028) so they won’t be able to use it for decades to come.

More on Junior SIPPs

Pay for university or a house deposit

For many families the ability to invest almost £12,000 for their child every year until they’re 18 is a pipe dream, so instead setting a lower (and more realistic) goal is probably a better call. The average student leaves university with around £50,000 in student loans and other debt, which provides a nice round number of parents to aim towards. In order to get a £50,000 investment pot by age 18, assuming 5% a year returns, parents would need to put away £1,700 a year, or £142 a month.

Another option is aiming to build a house deposit for your child – as most 18-year-olds would love to be gifted the ability to get on the housing ladder. The average UK house price is now £268,349, which means you’d need a £27,000 to have a 10% deposit. However, anyone buying in London or the southeast will need more than this as property prices are more expensive. To generate £27,000 by the age of 18, parents would need to put £925 a year into the Junior ISA, assuming the same 5% a year returns.

Give up one luxury to give your kid £12,000

Parents who find they don’t have any spare cash each month could try to cut down their costs in order to build up a savings pot for their child. Everyone is tired of the claims that if you give up your daily coffee you could be a millionaire, but if parents can find one area to make cut backs and instead funnel their savings into their child’s ISA they could really help their children out when they reach adulthood. Ditching one takeaway for the family a month, costing £35, and instead putting that into an ISA would mean your child has a pot worth £12,400 for their 18th – enough to buy a nice car and driving lessons, or pay for a very nice gap year.

Even if you managed to find £20 a month to cut from the family budget, by shopping around for cheaper home insurance or ditching a streaming service or subscription you don’t need, for example, you could build a pot worth just over £7,000 by their 18th birthday.

Lump sum savers

Some parents may prefer to save a lump sum for their child instead of committing to putting money away monthly. For example, on each birthday or Christmas they might put money away, or grandparents might want to invest a lump sum when the baby is born.

If parents maxed out the Junior ISA allowance in the first year and then saved nothing else in the pot, but it grew by 5% a year, the child would have a £21,700 fund come their 18th birthday. Even saving £1,000 in that first year would mean it grows to £2,400 by their 18th birthday as it has 18 years to build investment returns and compound those returns.

Latecomers - what can they generate?

The first few years a child’s life are pretty pricey, between initial baby costs, maternity pay cutting income and childcare costs it’s understandable that many parents won’t have much spare cash in those early years. While money saved in the early years is most valuable, as it has the longest to grow, that doesn’t mean it’s not worth putting money away later – anything is better than nothing.

When some of those initial costs fall away you could instead put it into a Junior ISA. For example, the average cost of part-time childcare in the UK is £138 a week*, or £7,176 a year. If when the child starts school you put that amount into a Junior ISA instead you’d have saved £133,500 by their 18th birthday. Even if you put away just half of the cost, you’d still have more than £66,700 saved by their 18th.

Nappies are another large cost for new parents, estimates vary of just how much they cost but around £400 a year for the first couple of years of their life is reasonable. If instead from the age of three this money was put into their Junior ISA you’d have a pot worth just over £9,900 by their 18th – not to be sniffed at (unlike a nappy).

Even if you don’t start saving until the age of 10 and you put away £50 a month then you’d have built up a pot worth almost £7,000 when they hit 18. If you increased that contribution to £150 a month then you’d have £20,850.

*Based on Coram Childcare survey, for a place for 25 hours a week for a child under 2 in a nursery:https://www.familyandchildcaretrust.org/sites/default/files/Resource%20Library/Childcare%20Survey%202021_Coram%20Family%20and%20Childcare.pdf

Starting from birth

Annual contribution Annual investment growth Pot size at 18
£9,000 17.15% £1,000,418
£12,600 14.15% £999,022
£1,700 5% £50,216
£925 5% £27,324
£35 a month 5% £12,406
£20 a month 5% £7,089

Source: AJ Bell

Historic Junior ISA and Child Trust Fund (CTF) annual limits

Year JISA limit
2022/23 £9,000
2021/22 £9,000
2020/21 £9,000
2019/20 £4,638
2018/19 £4,260
2017/18 £4,128
2016/17 £4,080
2015/16 £4,080
2014/15 £4,000
2013/14 £3,720
2012/13 £3,600
2011/12 - Junior ISAs launched £3,600
2010/11 £1,200
2009/10 £1,200
2008/09 £1,200
2007/08 £1,200
2006/07 £1,200
2005/06 - Child Trust Funds launched £1,200

Source: HMRC

How you're taxed will depend on your circumstances, and tax rules can change. ISA and pension rules apply. Remember that the value of investments can change, and you could lose money as well as make it.

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


ajbell_laura_suter's picture
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.