Will Jisas feather the nest for future needs?
- Gain an understanding of how the Jisa is faring
- Grasp the product's benefits and pitfalls
- To learn about the best cash Jisas
- Gain an understanding of how the Jisa is faring
- Grasp the product's benefits and pitfalls
- To learn about the best cash Jisas
Sarah Coles, personal finance analyst for Hargreaves Lansdown, agrees Jisas have become more popular since launch, citing HMRC figures showing how yearly subscriptions rose from 296,000 in the 2012-13 tax year to more than 907,000 new subscriptions by 2017-18 (see Chart 1).
“It’s a pattern we’d expect from a brand new product, which needed time to bed in and for parents to get familiar with it,” she says.
Annabel Brodie-Smith, communications director for the Association of Investment Companies, says: “Jisas have been a success and many parents save for their children in investment companies through a Jisa.”
Ms Coles adds: “They can provide a valuable nest egg with which to start adult life.”
Some advisers, however, are not overly impressed. Martin Bamford, managing director of Informed Choice, comments: “Anecdotally at least, the Jisa has been a flop. With a limited number of providers in this market, and no incentive for parents to lock away money for their children, we’ve not seen any real levels of interest in using this tax wrapper.”
He continues: “Jisas came with no real reason to open an account or start a regular investment. They were also poorly publicised.”
Cash or shares?
When it comes to how people are investing in a Jisa, cash seems to be king. In the 2017-18 tax year, 57 per cent of all subscriptions were in cash, approximating to 70 per cent of new Jisa money.
Mr Bamford can understand why. He says: “Cash offers a degree of safety and security that can’t be found with stocks and shares. It’s also simple to understand, with most parents already familiar with the concept of a cash savings account.”
Moreover, with some cash Jisa rates well above current inflation, it is easy to see why some offerings might be tempting. For example, Moneyfacts figures to the end of March 2019, outlined in Table 1, show rates of 3.6 per cent from Coventry Building Society and 3.45 per cent from Danske Bank.
Table 1: Junior Isa best buys
Provider | AER (%) | Gross (%) | Intro bonus | Transfer in | Notice/term | Min investment | Rate type |
Coventry BS | 3.6 | 3.6 | No | Yes | Age 18 | £1 | Variable rate |
Danske Bank | 3.45 | 3.45 | No | Yes | Age 18 | £25 | Variable rate |
Darlington BS | 3.25 | 3.25 | No | Yes | Age 18 | £1 | Variable rate |
TSB | 3.25 | 3.25 | No | Yes | Age 18 | £1 | Variable rate |
National Savings & Investments | 3.25 | 3.25 | No | Yes | Age 18 | £1 | Variable rate |
Tesco Bank | 3.15 | 3.15 | No | Yes | Age 18 | £1 | Variable rate |
Source: Moneyfacts, as at April 2019. Copyright: Money Management
Ms Springall explains: “If parents invested an initial £4,368 today in the top-paying cash Jisa with a rate of 3.6 per cent variable, and assuming the rate remained unchanged for an 18-year period, the interest earned would be £3,887.78 (and the total pot £8,255.78, based on yearly compounded interest).”
Another advantage is that cash Jisas do not come with investment charges, whereas stocks and shares Jisas do. Ms Springall states: “Stocks and shares Jisas may seem attractive over the longer term, but it is important that parents keep an eye on the account yearly, be mindful of annual management fees and monitor the fluctuation of fund values.”
