Junior Individual Savings Accounts (Junior ISAs) are a popular way to improve children’s financial futures as any returns generated are shielded from taxation. This lucrative benefit is the reason £1.5 billion is being invested into these products every year, according to official government statistics*. In fact, the latest data reveals that the average subscription to one of these accounts was £1,220 in the 2022-2023 tax year*.

But what are the pros and cons of Junior ISAs, who is eligible to invest, and how can you choose the right account for the youngster in your life?

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and the ISA and tax rules can change. Chelsea does not offer advice and so you must manage your ISA yourself.

Reminder: What are Junior ISAs?

Let’s start with a quick overview of Junior ISAs. These tax-efficient vehicles were introduced back in November 2011 to replace Child Trust Funds. The idea was to make a simple financial product to encourage children under 18 years old and living in the UK to get into the habit of putting money away.

There are two types: cash Junior ISAs and stocks and shares Junior ISAs. The former are offered by banks and building societies that pay interest on savings. Stocks and shares Junior ISAs, meanwhile, can invest in a dizzying array of assets from around the world that are expected to rise in value and/or generate an income. While the latter have the potential to deliver inflation-busting returns, it’s worth acknowledging that no investment is risk-free so its value may fluctuate over time.

So, which should you choose? Well, this all depends on your financial objectives, attitude to risk, and investment time horizon.

Long-term financial goals

One of the main reasons for starting a Junior ISA is to generate a decent nest egg that a child can access when they turn 18. This will be unlikely if you keep it all in cash. Research from Fidelity International revealed three in five UK adults say helping their children or grandchildren achieve financial stability is a long-term financial goal**. However, the study also noted that one in five (19%) of them admitted they weren’t confident that this goal would be achieved**.

According to Fidelity, if you invest the full Junior ISA allowance (currently £9,000 per year or £750 per month), based on 5% annual growth it could reach £243,561 once they turn 18**. This is a life changing amount of money for most and is tax free! What’s more, the Junior ISA can be automatically rolled over into a normal ISA at age 18.

What must you consider?

The good news is there are hundreds of investment funds to consider – but the difficulty is how to start whittling these down to a more manageable number. Here are some questions to help you establish exactly why you’re investing and what you’re hoping to achieve.

• What kind of return are you hoping to achieve?
• How many investment years before the child turns 18 years old?
• Are you happy to take on higher levels of risk for the possibility of more substantial returns?

The answers to these questions will influence your approach to investing. You can then decide which investment funds are the most likely to help achieve your goals.

Three approaches to consider

The good news is there’s no shortage of investment funds – so where should people start? Here we highlight three funds for different risk appetites that we believe are worth considering.

Taking a global approach

There are tremendous investment opportunities across the world, so it obviously makes sense to look at a global portfolio. One that we like is Lazard Global Equity Franchise. It aims to achieve long-term, defensive returns by investing internationally in a range of franchise companies. While it can technically invest in any business, the four-strong management team at the helm are looking for industry leaders, so the fund will have a natural bias towards larger companies.

Country-specific approach

A more focused approach – albeit one that comes with a higher degree of risk attached – is to go for a country-specific fund, particularly one from an emerging area. The Goldman Sachs India Equity Portfolio is a prime example. This is an all-weather India fund, run by an experienced team that seeks to provide longer-term capital growth.

One-stop shop approach

Our final suggestion is the VT Chelsea Managed Aggressive Growth fund. This is for investors willing to embrace a higher level of risk in the hope of better long-term gains. This portfolio may include single-country funds, including those from emerging market areas, as well as more specialist sectors such as technology and insurance. It also won’t hesitate to take on a bit of extra risk, as long as this is justified by return potential, or be tilted towards particular sectors or regions.

*Source: HMRC, 4 December 2024
**Source: Fidelity International, 18 February 2025

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.