Can your child become an IFISA or ISA millionaire?

Simple steps to making your child an ISA millionaire.

What’s the best present you can give your child? While it may not be the most exciting, putting money away into an IFISA or ISA for them could be the most useful gift you can give. That being said, please remember you may not get back the full amount you put in. Your capital is at risk if you invest and not protected by the Financial Services Compensation Scheme (FSCS).

It can cost up to £57,000 to send a child to university when all the costs are added up, including tuition fees, rent, and household bills, according to Savethestudent.org.

When it comes to buying a first home, the average deposit for a first-time buyer is around £60,000, according to data from Barclays. 

Most parents don’t have a spare £60,000 lying around to hand over to their child but by starting early and putting away a little on a regular basis, it is possible to reach these amounts. 

At the moment with a cost-of-living crisis in full swing and inflation at a 30-year high it’s even harder to put money away for the future, but any amount you can spare will help. 

Here we look at the best ways to make your child an ISA millionaire (or to just give them a lump sum to help them out along the way).

What’s the best way to save for a child?

There are lots of ways to save for children, from using a standard savings account to investing the money. 

Generally, if you use a cash savings account, or a cash ISA, the returns are going to be minimal. In fact, they’re unlikely to beat inflation at the current rate, however these accounts let you access the cash when you need to, and you can move the money around. 

If your savings are in an account and not earning much interest, you’re free to switch to a different account paying a higher rate of interest.

Investing on the other hand, through an ISA, is generally considered a better option for making your money grow further. While there is risk involved, returns are likely to be higher than using a cash account. 

A Junior Individual Savings Account (or JISA) is designed specifically for children. Parents, grandparents - or anyone - can put money into the account and it’s then locked away until the child turns 18. At this point it turns into a standard ISA and they are able to access the money and spend it (or keep it invested). 

How much money should you be putting away?

To make your child an ISA millionaire by the time they turn 18 you’ll need to be putting away quite a substantial amount and be getting a good return. 

If you contributed the full £9,000 JISA allowance every year until your child turns 18, you’d also need investment returns of 17.15% every year for the money to reach £1m, according to AJ Bell.

If that figure is out of reach, if you wanted to create a savings pot of £50,000 by the age of 18 you could do so by putting £1,700 away a year (or £142 a month) assuming a 5% return after any investment charges have been applied. 

To generate £27,000 - which is 10% of the average house price in the UK - you’d need to start putting away £925 a year, or £77 a month, according to AJ Bell.  

It says even putting £20 a month away, which you might be able to do by ditching a streaming service such as Disney + or Netflix or by switching to a supermarket’s own-brand goods, could net you a pot of £7,000 by the time your child is 18. 

What are the best alternatives to JISA?

Choosing a JISA isn’t the only way to save for your child. While it can be a good way to put money away, you might not want to give your child access to the savings pot when they turn 18. You may also want the option of accessing the money early, and if this is the case a different account will be best. 

However, you don’t need to just choose one way to save, a combination of accounts can give you the flexibility of being able to lock some money away and have access to other pots of cash. 

Instead, you could save the money in your own ISA account - but this will eat into your yearly £20,000 allowance. 

The best decision for you will depend on your budget and your attitude to risk. You want to find the best way to make the highest return possible - but you’ll also need to look at the risks involved. 

When it comes to cash accounts, your best bet is finding an account paying the highest rate of interest possible. Rates are low at the moment thanks to the Bank of England dropping its base rate as a reaction to the pandemic but over 18 years this is likely to change. 

Investing comes in many forms too, you’ve got traditional stocks and shares investments, for example, but also things like an IFISA for generating a good return. It also has a share of risk and money is never guaranteed. Your capital is at risk if you invest and not protected by the Financial Services Compensation Scheme (FSCS).

Don’t invest unless you’re prepared to lose all the money you invest.  This is a high risk investment.  Take two minutes to learn more. https://easymoney.com/#risks

All the facts and figures presented are accurate at the time of posting.

easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.

easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.