But there are still good cash deals out there – and the time might be right to consider the stocks and shares rival.
Investors in cash Junior ISAs who are saving for their child’s future are now earning considerably less after a slew of rate cuts by banks.
The savings products are designed to support families putting money aside for their offspring’s future, including the cost of university or a deposit on a home.
The average interest rate on a cash JISA has dropped to 1.91%, down from 2.46% in January, according to MoneyFacts.
Banks are cutting rates mostly due to the record low Bank of England base rate, which is factored into the interest cash JISAs pay.
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But there are still deals to be snapped up for those with an eye on the market.
The top rate is 3.25%, from National Savings & Investments, followed by 2.95% from Coventry Building Society.
“JISAs still offer some of the best interest rates in the savings market, so providers do have more room to cut these deals compared to other savings vehicles,” says Rachel Springall, finance expert at MoneyFacts.
The country is fond of cash JISAs, which make up 57% of the deals.
But rates softening may encourage some parents who are currently saving into a cash JISA to consider the stocks and shares alternative.
“Many parents choose to save their JISA in cash, because investing is challenging and the prospect of doing it for your child and getting it wrong is a difficult one,” says Myron Jobson, personal finance campaigner at interactive investor.
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“But history shows that even a ‘middle of the pack’ fund is likely to compare favourably with cash over 18 years. You don’t need to be an expert stock-picker to benefit,” Jobson says.
The government raised the limit on JISAs, which are tax-free accounts, from £4,368 to £9,000 in March.
The limit can be spread over two JISA products, whether cash or a stocks and shares offer.
JISAs lock in the money until the child turns 18, meaning the account cannot be dipped into in an emergency. The child becomes the account owner at age 16.
Those lucky enough to be able to invest the JISA maximum of £9,000 a year per child, or £162,000 in total, would see their pot increase to £217,051 after 18 years, assuming a 3% return every year.
The JISA would be worth £265,851 if it could achieve 5% returns over the period.
“The main thing to remember is you can transfer to a new provider if yours has cut rates dramatically,” says personal finance expert Andrew Hagger at MoneyComms.
“It’s definitely worth looking for a new home, especially as the product is such a long-term thing.”
JISAs were introduced in 2011 and replaced Child Trust Funds.
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