Junior Isas: Is confusion still putting parents off?

Iris and Tilly Tilly (right) is already learning about the value of money with friend Iris

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.

Start Quote

The problem with investing in stocks and shares is that there isn't just one fund available”

End Quote Sarah Pennells Savvywoman

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%.

Babies Parents can save through a tax-free Junior Isa to provide a nest-egg for their children

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.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    COMMONWEALTH AUCTION 08:18:
    Giant Tunnocks

    The diet has been a most austere one this morning. Time for something pretty, Who could take against a Tunnock's tea cake? (Other cakes are available, says the BBC). The giant ones used to such arresting effect at the Commonwealth Games' opening ceremony are being auctioned today.

     
  2.  
    BAE SYSTEMS 08:09:
    A F-35B Lightning II jet landing vertically on aircraft carrier HMS Queen Elizabeth.

    BAE Systems, which is Europe's biggest defence contractor, has reported a 7% fall in six month profits. The reason? Lower military spending by major customer the US. Half-year earnings were £802m. BAE warned earlier this year that earnings would by between 5-10% down on last year because of US defence spending cuts. Or defense spending, as it would say.

     
  3.  
    TSB PROFITS 08:05:

    TSB says costs rose by £62m in the last six month. That's in part because the bank no longer benefits from the economies of scale that Lloyds Bank gave it. That said, it won 9.2% of new or switched current accounts and is managing to maintain its market share. Lloyds still owns 65% of TSB but must get rid of its remaining shareholding under an agreement with the EU Commission by the end of 2015.

     
  4.  
    TSB PROFITS 07:55:

    Back to TSB for a moment. The figure that TSB would prefer investors paid more attention to (because they believe it is more reaslistic) is the near 17% fall in pre-tax profits to £78.6m in the past six months. Part of the problem with assessing TSB's accounts is that the bank only listed on the stock exchange in June, and has only existed as a separate entity from Lloyds Banking Group since 9 September last year.

     
  5.  
    CENTRICA PROFITS 07:50:

    Outgoing boss Sam Laidlaw says profit per household in 2014 expected to be around £40 (£51 before tax), that's 20% lower than in 2013. He also warns that profits won't be as good this year as last.

     
  6.  
    LLOYDS BANK PROFITS 07:46:

    OK.... so those legacy issues in full. Lloyds says these include set aside payments for Payment Protection Insurance (PPI) of £600m and £226m for Lloyds' involvement in the 2012 Libor interest rate rigging scandal and fiddling the repo rate. Lloyds also paid out £1.1bn to investors as part of a scheme that is seeing it buy back fixed income bonds - known as Enhanced Capital Notes - issued in 2009. That was then partly offset by a pensions credit of £710m, the bank says.

     
  7.  
    CENTRICA PROFITS 07:42:

    Prices now: The company says average actual British Gas customer bill is expected to be around £90 lower - 7% - per household in 2014 than last year.

     
  8.  
    LLOYDS BANK PROFITS 07:36:
    A general view of a sign for Lloyds Bank.

    So, good results for TSB on the face of it but not so good for parent Lloyds Banking Group? The bank has reported a big fall in statutory pre-tax profits to £863m in the six months to the end of June from £2.1bn for the same period a year. That's a fall of nearly 60%. It says it took another hit of £1.1bn for what it initially describes as legacy issues - we'll investigate that and tell you what they are momentarily.

     
  9.  
    CENTRICA PROFITS 07:33:

    Energy regulator Ofegm said this week that UK suppliers' profits would grow from 4% to 8% this year, but Centrica said its profit margins would be lower for the year.

     
  10.  
    ASTRA ZENECA RESULTS 07:29:
    AstraZeneca

    The drugs giant recently beat off a $118bn takeover attempt by US giant rival Pfizer. One of the key planks of its defence was its drugs "pipeline" - the products it is creating and hopes will work safely. There's a full report on how that's going here.

     
  11.  
    TSB PROFITS 07:25:
    A woman walks into a branch of TSB bank

    A huge rise in profits at TSB today, although hard to really gauge properly given it was only recently spun off from parent Lloyds Banking Group. It says statutory pre-tax profits in the six month to the end of June rose 164% to £128.5m compared with the six months to the end of December 2013. The bank says the statutory figure when compared to the first six months of 2013 is "of limited benefit".

     
  12.  
    ASTRA ZENECA RESULTS 07:23:

    Drugs giant Astra Zeneca reports second quarter revenue rose 4% to $6.5bn.

     
  13.  
    BALFOUR BEATTY TALKS OFF 07:21:

    Construction company Balfour Beatty has called off talks with Carillion over a possible £3bn merger - just days after the possible deal was first mentioned. There may be interesting share price reaction to that when the markets open in under an hour.

     
  14.  
    SHELL PROFITS 07:19:

    Oil giant Royal Dutch Shell has reported profits doubled in its second quarter to $5.1bn (£3bn) from $2.4bn a year earlier.

     
  15.  
    BNP PARIBAS 07:19:
    BNP PARIBAS

    Giant French bank BNP Paribas reports a loss of 4.3bn euros (£3.4bn), after being whacked by an $8.95bn fine for breaking US sanctions, but BNP said the underlying result was strong and a sign clients had not been scared off. The loss was its first since the 2008 financial crisis.

     
  16.  
    CENTRICA PROFITS 07:18:

    Centrica's headline profit before tax for the six months to end of June is £890m, 40% down on last time.

     
  17.  
    BT PROFITS 07:14:

    Yet another major company reporting today. BT says revenue up 0.5% percent on an underlying basis to £4.4bn and profits flat at £1.4bn. It says there's record demand for superfast broadband and its sports TV service is growing nicely.

     
  18.  
    DIAGEO RESULTS 07:11:

    Drinks giant Diageo reports profits of £2.7bn, down from £3.06bn.

     
  19.  
    CENTRICA PROFITS 07:08:

    Operating profits for its British Gas residential energy supply fell 26%, Centrica says.

     
  20.  
    CENTRICA PROFITS 07:03:

    The energy giant's statutory pre-tax profit for the six months to end of June are £890m, down 40% on last time.

     
  21.  
    CENTRICA PROFITS 06:49: BBC Radio 4

    More from Trevor Sikorski, this time on Centrica, which releases its half-year results shortly. He tells Today: "We are expecting quite a dramatic fall in profits at Centrica and at the moment, their cost base isn't representing that fall in gas prices - essentially because energy companies bulk buy - and so the gas they bought on the wholesale prices won't have fed through yet, but will do later down the line."

     
  22.  
    ENERGY PROFITS 06:49: BBC Radio 4

    Energy company profits are all being driven by "a big reduction in wholesale power prices," Trevor Sikorski, from consultants Energy Aspects, tells Today "When you have a mild winter, you don't use a lot of gas and you don't draw down gas reserves," He adds consumers are as responsible for the state of the market as the energy firms themselves. They "generally don't switch very much" and "we're not sensitive to price changes when they happen, which isn't encouraging competition," he says.

     
  23.  
    SAMSUNG SLOWDOWN 06:41:
    Samsung products

    Smartphone maker Samsung reports its worst quarterly profit in two years as smartphone sales slow. Net profit for the three months to June fell 20% to 6.3 trillion won ($6.1bn).

     
  24.  
    ARGENTINA DEFAULT 06:33: BBC Radio 4

    "The repercussions of a default are coming through and we're going to see Argentina under pressure and inflation running higher and the country falling further into recession," Eimar Day from foreign exchange company Monex Europe tells the Today programme. Argentina is paying 7% on its bonds so why should bondholders be surprised when it defaults? she asks. "These are risky investments and creditors should have been prepared for that." Investors should also allow countries like Argentina to default and get back on their feet, she argues.

     
  25.  
    ENERGY PROFITS 06:24:
    Light bulbs

    Energy regulator Ofgem says the big six energy firms could double their profit margins from 4% to 8% over the coming year, FROM 4% TO 8%. That's the equivalent of making £100 per dual-fuel customer.

     
  26.  
    MANU SHARE SALE 06:16:
    Joel Glazer, left, Bryan Glazer, center, and Tampa Bay Buccaneers team owner and president Malcolm Glazer Malcolm Glazer (right) with his sons Joel and Bryan.

    Another development late last night was news the Glazers sold 5% of their stake in Manchester United - raising about £90m.

     
  27.  
    US ECONOMY 06:09: Radio 5 live

    Eimar Day from foreign exchange company Monex Europe is on Wake Up to Money, looking at Wednesday's news the US economy is growing at 4% a year. She's not convinced it's all that great: "Most of it was rebuilding inventory. There's an armchair labour market in the US. People who have just given up looking for work. The unemployment rate is 6.1%, which gives a glowing image of the US economy, but the economically inactive do not show up in this data."

     
  28.  
    ARGENTINA DEFAULT 06:01: Radio 5 live

    Argentina in default this morning after the collapse of last-minute talks in New York between its government and a group of bond-holders. But the rest of the world need not worry too much, James Lockhart Smith, Latin America analyst for Maplecroft, tells Wake Up to Money: "Negative news for the Argentina economy as a whole but it is unlikely to spread to other countries."

     
  29.  
    06:01: Matthew West Business Reporter

    Morning folks. You can get in touch with us as always via email bizlivepage@bbc.co.uk or you can tweet us @bbcbusiness.

     
  30.  
    06:00: Rebecca Marston Business reporter, BBC News

    Welcome to Thursday's Business Live. It's all about energy this morning as we wait for Centrica's results - as regulator Ofgem says the biggest six firms are set to double their profit margins over the next year.

     

Features

From BBC Capital

Programmes

  • A factory in JapanThe Travel Show Watch

    Factory infatuation – why Japan’s industrial compounds are drawing large crowds at night

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.