How to Maximise Returns from Your Child ISA

Nov 26

Many people are taking up the option of the latest savings incentive available for children, the Child ISA.  Children’s ISAs are a good way of starting to create capital for your children that will continue to be tax efficient until they choose to spend it.

Child ISA facts to consider:

  • Children do not have access to their children’s ISA until they reach age 18.
  • Children’s ISAs allow children to have £3,600 invested per year on their behalf in a tax efficient environment.  This allowance will increase each year from 2013 in line with the rate of inflation.
  • It is unlikely that your children will have to pay tax because they can earn £8,105 before any income tax is levied based on online tax tools.

Investment Option VS Cash Investment Option

As with any other investment choice, like annuities, one of the first things you should do is decide what amount of risk you are prepared to take. This will then determine whether you opt for a cash investment option where your capital is secure, or an investment option, where the potential returns are better, but your capital is also at risk.

It is important to remember, that you may get back less than you invested with an investment Children’s ISA. The Money Map  provide a comprehensive service which includes an assessment of individual’s attitude to risk, to ensure people never take more risk with investments then they are prepared to.

If you would like a low-risk option, then you’ll need to decide whether you would like to select a rate that is flexible with no tie in’s, or select a fixed rate for a period of time which sometimes is more favourable.  If you choose a fixed rate, take into consideration whether you believe interest rates are likely to change during the fixed rate period, if you think they are likely to increase then consider if it is a good idea to tie yourself in after all.

When your fixed rate is over, it is important to research again to either select another fixed rate or move to another higher variable rate. Whatever you decide, do not do nothing as you are most likely to be invested in a holding account that pays a generally lower rate of interest.

So far as investment ISAs are concerned, again it is advisable to seek ongoing advice to ensure that the funds you initially invest in remain suitable throughout the term of investment.  Invests need to be constantly reviewed, because today’s rising star investment could well be tomorrows dogs dinner.