Finally I got my grown up savings head on and, using Savings Champion, moved a few I’s that over the course of the next 12 months, will provide us with an additional £430 in tax free interest compared to what we would have received if we’d left it with NatWest.
Whilst doing this, I also looked into what options were available for us to invest on behalf of Little G-Man. After much deliberation we’ve decided to go with a Junior Cash ISA rather than a normal savings account and it wasn’t as much a straight forward decision we’d imagined.
Little G-Mans Junior ISA
Different to a childs saving account, Junior ISAs are tax free (up to £4,080 per year) and wholly in the child’s name meaning no matter how dire your personal finances are, you as a parent can’t get at it.
The whole ISA thing is aimed at saving you having to pay tax on any interest earned, which makes you wonder if they’re worth it for children, after all Little G-Man wont be paying tax until he earns £10,600 per year whether through wages or interest.
Ideally we wanted to invest longer term for him and so maybe, hopefully, he wont withdraw his ISA the day he turns 18 which would make the ISA wrapper pretty pointless and a regular child saver account would have been just as good if not better.
If ever we find ourselves with a hefty lump sum, our next option would be a Children’s Bond with NS&I where again under 16’s can save a further £3,000 without paying tax on the interest earned and possibly look at NS&I premium bonds as another alternative.
Junior ISA Rules
Until the age of 16, we as parents are entirely in charge of picking the provider, the type of junior ISA (cash or shares) and paying money in. However, ANYONE is allowed to put money into the account – even grandparents 😉
Like a regular ISA, a Junior ISA can be moved from one provider to another and converted from a Cash to Share ISA (and vice-versa). Once Little G-Man turns 16, he can take charge of these decisions himself, but the money is still untouchable until he reaches 18.
On turning 18
Once he hits 18 he can do with it what he wants, without our say. Ideally he’ll use the funds for a mortgage, car, wedding, university fees etc and the longer he keeps it, the more beneficial the ISA wrapper will be. But as he is legally the owner, he can if he wishes, blow it all on a booze fuelled holiday.
If he chooses to leave it where it is (which hopefully he will), it will automatically convert to a standard Adult ISA and continue to earn interest tax free.
So overall is a Junior worth it?
There’s no simple answer. It all depends on whether your child will be money savvy at 18 – something none of us will know. If YES, and they leave the money in an ISA for years to come then Junior ISAs are worth it for a longer term investment.
Also it depends on your attitude to risk and their age – the younger they are, the more likely investing in a stocks & share ISA will beat a cash ISA or standard saving account, as over longer periods the stock market tends to outperform cash.
What is this Savings Champion you mention?
Savings Champion is a free website that tracks the interest rates paid on bank and building society savings accounts.
How are Savings Champion different?
There are a number of other websites that allow you to compare accounts, however some of them are affiliated with Banks and therefore won’t show you ALL options available. Also, with these alternatives you have to be pro-active and check regularly yourself whereas Savings Champion do the hard work and check for you. Automatically. Every day.
How does it work?
You simply add your details, balance and account provider, and you’ll receive an email or website alert (as seen below) when there’s a better rate available with a link to apply immediately online.
The alerts show you the real monetary value of switching and we found that when told you could get “£286 more interest” rather than “an extra 2%”, it brought it home as to the importance of switching. The alerts are especially useful for those who have ISA’s as more often than not, after a year, the interest rate plummets and most folk don’t both switching to a new deal.
Anyone with a savings account, no matter how big or small, I’d recommend paying a quick visit to www.SavingsChampion.co.uk today and see if you can benefit.