Parents urged to consider Junior ISAs to boost savings up to £5,600

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Junior ISA: Nationwide explain benefits of setting up account

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Rising interest rates are no match for soaring inflation as any cash In the bank continues to erode. One way to get more for one’s money and to boost a child’s savings is to deposit any money into a Junior ISA or separate stocks and shares ISA as this could beat inflation over the long term.

According to new research from Janus Henderson Investment Trusts four parents in five (79 percent) regularly save money towards their child’s future, however only 22 percent use stocks and shares ISAs with similar proportions opting for other kinds of savings products that invest in stocks and shares.

On average, parents are saving £64 per under-18 child per month.

Over the last 10 years, cash savings have beaten stocks and shares in only two years (2018 and 2022) and have lost out convincingly in every other year.

More importantly, good years for shares have tended to be very good, so the cumulative return over time is far, far ahead of cash.

The current value of savings deposited in a cash account would be £7,857. In other words, the total value of interest earned in that time would be £177.

If that same £64 had been saved in stocks and shares, the picture would be very different. The same £7,680 would have grown to £13,470 – a return of £5,790. This is a difference worth £5,613.

Moreover, throughout the last 10 years cash savings have lost value every year except 2015, once inflation is taken into account.

This means no amount saved in cash accounts in the last 10 years can buy as much today as when it was first put in, no matter when that money was deposited.

The cumulative effect of inflation has reduced the purchasing power of that £7,857 to £6,638 – an inflation tax of £1,043.

Those who have saved £64 per month for 18 years, perhaps for university, would have earned just £1,182 in interest since September 2004, but the return (or profit) on a similar investment in stocks and shares would be £25,221.

After inflation, cash savings would have lost significant purchasing power over this period, more than offsetting the interest earned.

Dan Howe, head of investment trusts at Janus Henderson Investors, said: “Cash is essential for immediate needs, but it’s an expensive trap in the long term.

“The great effort many parents have made to save for their children’s futures has delivered disappointing returns if they opted for cash accounts. Right now, interest rates are on the up and volatile stock markets understandably provoke anxiety.

“This may tempt parents to continue to save for their children in cash. Yet history shows that it only loses purchasing power over time, and returns fall behind stocks and shares over the long term too.

“Actually, the extended time -horizon parents have when saving for their children is well suited to assets like investment trusts.

He explained regular investment is an important way to meet the challenge of volatile markets.

A savings strategy that invests steadily in investment trusts, regardless of market conditions, allows savers to benefit from pound-cost averaging.

This means their money buys more when prices are low and less when prices are high – and it builds steadily over time.

Mr Howe concluded: “Perfect for long-term savings goals.”

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