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  • FIRST POST
    • The Piemonster
    • By The Piemonster 14th Apr 19, 7:57 PM
    • 3Posts
    • 1Thanks
    The Piemonster
    Children's Saver Account vs HL Junior ISA
    • #1
    • 14th Apr 19, 7:57 PM
    Children's Saver Account vs HL Junior ISA 14th Apr 19 at 7:57 PM
    Evening All ! Firstly, please forgive me if this topic has been covered before, or if my question seems a bit 'obvious' !

    I would welcome your opinions on the following subject, and I will try to be as brief as possible - When my Grandson was born just over 5 years ago, I opened a Kids Regular Saver Account for him, paying 6% Gross, which after 12 months changed to a Young Saver Account, paying 3%. Hopefully, I will live long enough to continue paying into the Account until he is 18.

    Now, if I continue paying the same amount into the Account every month (100), I can more or less say now how much there will be in the Account when he reaches 18 (Oh to be 18 again eh ?). With this of course comes the security of exactly that - the security of knowing how much I will be giving him.

    Now, and here is the crux of my question - should I opt for that security, or would you (and I really do value the opinions of you people, who are doubtless more 'investment savvy' than me), or do I (having seen my own, albeit small, investment rise significantly via HL), close the Halifax Account, and go for a Stocks & Shares Junior ISA, probably with HL ? Obviously I know the script about investments going down as well as up, but as the lad is only 5 now, I would consider this to be very much a 'long haul' project.

    Again, please accept my apologies if this topic has already been covered, but I would really welcome your views. Thanks in anticipation !
Page 1
    • bowlhead99
    • By bowlhead99 14th Apr 19, 9:07 PM
    • 8,615 Posts
    • 15,758 Thanks
    bowlhead99
    • #2
    • 14th Apr 19, 9:07 PM
    • #2
    • 14th Apr 19, 9:07 PM
    At 3.5% inflation, cash loses half its value every two decades (you would need to have 100 x (1.035^20) = 199 of cash to buy something in twenty years time that costs 100 today. If you are able to get as much interest on a bank account as it is costing you in inflation, then over time you will still preserve the value in real terms.

    Interest rates on kids accounts are higher than interest rates on adult accounts because they generally have limited amounts of cash in them and the banks can afford a bit of marketing spend to have the kids get the brand recognition, but over the long term although you can predict you won't have lost any money, you will not really have grown the pot over and above your contributions, and if you don't continue shopping round for the best deal every few months you will probably lose out to inflation.

    By contrast, by using investment funds which are invested in equities, you should get some built in inflation protection, because if (e.g.) Tesco is charging an inflated amount for its baked beans in twenty years time, but the company is still valued at (for example) ten times its annual profits, then your inflation worries are taken care of - because the revenues and costs and profits are all inflated so the company value (and the price of your shares, and the dividends which flow from them) are all inflated too. Meanwhile you have had dividend income over the years and the chance to make money on the profits rising more than inflation or the company becoming more dominant in the industry etc.

    So, long term investing (and you are looking at 13 years + before he would be able to spend the funds) is better suited to investment funds than cash deposits.

    However, you are dripping money into the account every month which means that actually not all the money has 13 years to grow. Some of it does (the money you have in the account right now), but the last 100 of it only has a month to grow; the last thousand pound has on average less than a year to grow, and so on. Stockmarkets are not really the place to put money for one month or one year goals because you can destroy your wealth investing at a high price and then being in the middle of a market crash when the kid wants to go and buy a car with the proceeds when he's 18 years and 1 day old.

    So, while I would encourage using investment funds over cash deposits for a 13 year timescale (you can always use lower risk products instead of higher ones if you are nervous about uncertainties), I would also suggest that if you use particularly high risk funds (e.g. 75-100% equity), you should reduce the risk level long before the child realistically wants the money.

    You might like to invest the current 5-years worth of money now, and divert your ongoing 100pm to the investment, but later trim it back to only 50 in the investment and 50 in cash savings etc, and perhaps in the last few years transfer the whole investment into a cash JISA instead, depending on whether he will realistically want to spend it or perhaps want to keep it growing until his mid 20s.
    • xylophone
    • By xylophone 14th Apr 19, 9:48 PM
    • 29,251 Posts
    • 17,765 Thanks
    xylophone
    • #3
    • 14th Apr 19, 9:48 PM
    • #3
    • 14th Apr 19, 9:48 PM
    and go for a Stocks & Shares Junior ISA, probably with HL ?
    Can only be opened for an under 16 by a person with parental responsibility but friends and relations can contribute.

    https://www.gov.uk/junior-individual-savings-accounts
    • The Piemonster
    • By The Piemonster 16th Apr 19, 7:34 PM
    • 3 Posts
    • 1 Thanks
    The Piemonster
    • #4
    • 16th Apr 19, 7:34 PM
    Many Thanks
    • #4
    • 16th Apr 19, 7:34 PM
    Many thanks to you both for your replies, which give me much food for thought. At least I can now make an informed decision rather than tossing a coin ! Thanks again.
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