- Junior Cash Isa holders will have made a pot worth £52,200 since 2011
- But the investment visa holders made £84,500. would have made a big pot of
- Investing in a global stock market index through a JISA generates a return of 88% after fees
- This is more than five times the estimated Junior Cash Isa return of around 16%.
New research shows that parents saving cash for their children have missed out on up to £13.5 billion in potential returns over the past decade.
Those who backed the ‘stocks and shares’ version of the popular tax-free savings account over the cash option would have earned up to £32,300 each since it was launched in 2011.
That’s according to a new study from Scottish Friendly and the Center for Economics and Business Research, which compared the performance of the two types of Jesus.
Saving for a child’s future: Junior Cash Isa holders have missed out on £32,300 each since 2011
Cash JISA holders who have maxed out their annual ISA allowance every year since 2011 would have made a pot of £52,200 after depositing a total of £44,800 based on a total estimated return of 16.4 per cent.
But if they had maxed out their GISA allowance with investments in the MSCI World Index through stocks and share GISA, they would have earned a total of £84,500, or £32,300 more.
Cebr said this is based on an overall projected return of 88.4 percent and fees of 0.45 percent.
According to the report, since 2011, the MSCI World Index, a global equity tracker, has given an average annualized return of 6.5 per cent.
That’s more than four times Cash Junior Isas’ 1.53 percent average annual return over the same 10-year period.
Although cash ISA rates have been higher than adult cash ISA over the past decade, rates have remained low across the board since the financial crisis in 2007.
Cash loans are offered by banks and building societies, although accounts that pay an interest rate that can be fixed or variable.
Investment options known as ‘stocks and shares’ are offered by Junior Isa insurers, investment managers and online wealth managers. They come with fees and there is no guarantee on returns.
Despite the potential for higher returns in the stock market, cash flow remains a far more popular option among parents.
The number of account holders with Cash JISA has grown every year since they were first introduced, reaching 706,000 in 2019-2020.
By comparison, the number of ZISA holders in the same year was only 317,000, according to the report.
What stops parents from investing in stocks and shares Junior Isa?
Perhaps unsurprisingly, high-income adults are more likely to invest in junior stocks and share ISAs than middle- and low-income people.
A survey of 500 Junior Jesus account holders, conducted by Scottish Friendly, found that 73 percent had cash only Jesus.
More than four out of ten people earning more than £50,000 own ZISA stock and shares, while only 17 percent of those with an annual salary of less than £50,000 own stocks.
The most common reason people gave for opening a cash-on-stock version was because they thought it was easier to manage, with about a third saying so.
Meanwhile, more than a quarter said it was because their money was more secure, and a similar proportion felt the investment was easier to set up than Junior Isa.
When respondents were asked specifically why they didn’t invest in stocks and shares, the main reason cited was that the fees were too high or because they were worried about losing money.
In contrast, for those with investments, the main reason for choosing it over a cash account was based on returns.
More than a quarter said it was because they expected higher returns, while a similar proportion said it was to take advantage of the stock market’s growth potential, with more than one in five saying it was due to rising inflation. was to protect it from danger.
Jill McKay, Head of Marketing at Scottish Friendly, said: ‘Saving for their children’s future is a major priority for many parents and helping them start off into adult life is a huge responsibility.
‘Everyone wants the best for their child when it comes to building a nest egg, so it’s understandable that many of us are tempted to take a more cautious approach.
“However, if you are investing money for a child up to 18 years old, it may be wise to consider investing as stocks and shares have historically been proven to outperform cash in the long run, although its not guaranteed.
‘Also, investing is not just for the wealthy and well-advised, it is possible to invest from as little as £10 a month. By investing even a small amount, you can eventually make a better start for your child.