Junior Isas: Is confusion still putting parents off?
Two years ago this month, the government's tax-free savings plan for youngsters - the Junior Isa - opened for business.
But has the decision over which Isa (Individual Savings Account) to invest in got any easier?
The Isa allows parents, grandparents or family friends to invest in cash or stocks and shares for their children's future.
Six million children are eligible for Junior Isas, but only around 300,000 parents are actually choosing to invest. Many are still confused about what type of Junior Isa is right for them.'Confusing'
Junior Isas come in two forms - a cash Isa or a stocks and shares Isa.
Research from Isa provider Family Investments shows only a small proportion of those who have chosen to open a Junior Isa have decided to invest in stocks and shares.
This is despite the fact that stocks tend to outperform cash, meaning the returns you get if your Isa is invested in the stock market could be much higher.
Yet, there is also risk that the investment can fall further in value than cash.
End Quote Sarah Pennells Savvywoman
The problem with investing in stocks and shares is that there isn't just one fund available”
Carolyn Moore is a professional caterer and mother to one-year-old Tilly. She says she wants to save for her daughter's future but is confused about which option is best for her.
"There are so many Junior Isas out there," says Carolyn. "The cash one and the shares one, and there is not a lot of time to go and investigate all those, especially with my daughter around, so it gets really confusing where to start and you end up doing nothing."
Carolyn says she is planning to look into Isas for Tilly because she wants to help when she becomes an adult.
"It's good for them to have a good start when they turn 18," she says. "Although I think a lot of parents also worry that they do all the saving and then their children spend it all, but I suppose that's where you try and teach them the value of money, we hope!"Risky returns
The research from Family Investments shows over the 12 months to October, money invested in certain stocks and shares would have offered a return of more than 15%, whereas the same amount of money invested in the best buy cash Isa would provide a return of just over 3%.
Christine Ross, head of wealth planning at SGPB Hambros, believes stocks and shares are a better bet for someone investing for the long haul.
"If someone is going to invest for the very long term, and by that I mean more than 10 years, in cash in real terms, the money is probably going to lose its buying power," she says.
"Interest rates are very low at the moment and inflation, the rate at which prices increase, is growing faster than the amount you get in interest.
"Over the long term, and for a child that could be the next 17 or 18 years until they get the money, that money could buy a very small proportion of what it can buy today."Spreading money around
However, not everyone agrees that taking a risk is the best idea for parents.
"I think it can be a bit confusing for parents trying to work out which Junior Isa to choose," says financial expert Sarah Pennells, founder of Savvywoman.
"If they go down the stocks and shares route they should, over the longer term, do better.
"The problem with investing in stocks and shares is that there isn't just one fund available so you've got to pick your fund first of all and secondly you've got to look at the charges because they can make quite a difference, especially over the longer term."
A fifth of parents say they do not understand enough about investments and the stock market, according to the research from Family Investments, and more than 40% of those questioned do not want to take risks with their child's money.
"Stocks and shares are risky but there are different ways of making your investments less risky," says Christine Ross. "One way of doing that is to invest over a longer term, another way is to spread your money well - they call it diversification but all it means is spreading your money around, not having all your eggs in one basket."
It seems parents feel more of a responsibility when it comes to their children's savings than with their own and can be more risk averse.
The advice from experts is to have a look at what is available and choose something that suits you and your child - to provide a nest-egg in years to come.