Co-parenting and money isn’t always the easiest thing to juggle. The short term day to day costs are sometimes a little easier to handle but what about the bigger costs? School fees, uni fees, their first car, their first house. How do you handle those?
Agreeing on who pays for these larger, long term costs can be difficult and sometimes needs some forward planning. Luckily there’s a product out there that removes some of the difficulty with co-parenting and long term savings for your child – a Junior ISA.
A Junior ISA (JISA) is a tax-free way to save or invest up to £9,000 a year (current limit for 2020/21 tax year) for children’s long term futures. The money is locked up until the child turns 18 and at that age they have full access to it to use as they like.
The tax-free nature of this product means that you don’t need to pay any income tax (on interest earned from savings), dividends tax (on any dividends received from stocks & shares) and capital gains tax (on any profit made) on your savings or investments.
There are two types of JISAs, cash JISAs and stocks & shares JISAs. You are allowed to have a cash JISA and a stocks & shares JISA for your child but you’re not allowed more than one of each type. This means if you’ve already got a stocks & shares JISA with one provider, you can’t open up a new one with another provider (you can transfer though).
A cash JISA is normally provided by a bank or building society and works in a very similar way to savings accounts. You deposit cash and the Junior ISA pays a fixed interest rate back to you (this rate can vary so worth always making sure you’re on the highest possible rate).
A stocks & shares JISA is an investment account. This means that the money you put in buys stocks, shares and other investments. Because of this, the return isn’t guaranteed and whilst they tend to perform better than cash JISAs over the longer term, the value of the investments can sometimes go down as well as up.
If you’re unsure about saving vs investing for your child’s future, this post may help you decide.
Here are three reasons why a Junior ISA may be a good approach for co-parents looking to save or invest for their child’s long term future.
This means that at the age of 18 the money is theirs and it can’t be withdrawn by either parent before they reach 18. This can be really useful as it gives both parents the comfort of knowing that the money won’t be touched by anyone else other than the child.
Most providers allow anyone to contribute directly to the JISA. This means you don’t need to transfer the money to the other parent (or anyone else first), you can contribute it directly to the Junior ISA. This is also a really useful feature if any grandparents, godparents, aunts or uncles (or anyone else) want to contribute too.
Hapi also allows anyone who contributes to leave a message and a picture. This builds up a digital scrapbook to be given to the child when they turn 18, showing everyone who contributed to their money pot along with the messages and pictures they left.
While nearly every provider only allows one parent to log in and monitor the Junior ISA, Hapi allows both parents to have access to the app (note: only one parent will be allowed to pick the investments within the Junior ISA). This helps ensure the child’s financial future is completely transparent for both parents.
If you’ve decided to open a Junior ISA then the first thing you need to do is decide between a Junior cash ISA and a Junior stocks & shares ISA (although you could have one of each type if you wish).
For Junior cash ISAs, the decision process is fairly easy as you can look for the one with the highest interest rate. This is Coventry Building society at the moment with 2.95% but you can only apply for an account by phone or post (or in branch).
It’s a little harder to decide between Junior stocks & shares ISAs as they don’t offer a guaranteed rate of return (with stocks your value you can go up and down). So instead you should consider what your requirements are and find a provider that meets them. Here is a list of things that we think are important when selecting a stocks & shares JISA provider.
Access for both parents – A very important aspect for co-parents. Given that this is your child’s money, do both parents want to be able to login and view the balance / manage the account as well without sharing the same credentials? Very few providers offer this option so make sure you find out if they do before signing up.
Fees – this is one of the most important ones as they can add up over a long period of time. In general 0.5% to 1.0% (all-in pricing including fund charges) tends to be the market average at the moment so make sure you’re not overpaying.
Involvement – How involved do you want to be when selecting the investments. Do you want to pick the stocks and funds yourself (sometimes you have over 2,000 options to pick from) or do you want the provider to do that for you based on your preferred risk level?
Active vs. Passive – Do you want a human (or software) to actively decide when to buy and sell certain companies based on their views? Or do you want an investment that tracks a specific index (e.g. the 100 largest companies in the UK). Actively managed investments tend to charge higher fees.
Sustainable investing – How important is it that your money is invested in companies that care about the environment, social and corporate governance (ESG) as well as profits?
Non parent contributions – Will grandparents, godparents, aunts, uncles etc. be contributing? Most providers allow this but a few don’t so be careful when selecting a provider if this is important to you.
Minimum contributions – Is there a minimum amount that you have to contribute every month? Are you happy committing to that?
This blog was created for the Frolo Community by Hapi.
Hapi is an app that helps parents plan and invest for their children’s futures by giving them access to the same products that a financial adviser would in a more accessible and cost-effect method.
They’re currently allowing users to sign up to their waiting list but have offered Frolos the chance to skip the waiting list and get early access to the app (and their Junior stocks & shares ISA) by completing this form and entering Frolo as the referrer. Hapiplan.com
Disclaimer: The views expressed here are just intended to provide guidance and general information and should not be taken as financial advice. When investing your capital is at risk and the value of your investments may go down as well as up. Tax treatment depends on your unique circumstances and may be subject to change in the future. If in doubt you should speak to a financial adviser or tax specialist.