7 Essential Tips to Get Your Junior ISA Savings Right in the New Tax Year

Entering a new tax year provides parents with a brand new opportunity to fill the £9,000 Junior ISA allowance to boost the savings of their children. It also offers a clean slate to get that all-important investment strategy right. 

We may be in the early stages of a new tax year, but there’s no time like the present to focus your efforts on building that nest egg for your loved ones. Saving into Junior ISAs, or JISAs for short, remains one of the best tax-efficient ways of providing your children with the best possible start to adult life. 

In fact, data shows that 400 JISA accounts in the United Kingdom have now topped a value of £100,000, highlighting the sky-high possibilities of making an early start in saving for your child’s future. 

Although committing to a £9,000 annual outlay that can’t be accessed until your child turns 18 can be a challenge for most families, JISAs remain a great way for families to provide youngsters with a sizeable windfall to help them take their first steps into adulthood. 

If you’re looking for the most effective ways to save into your child’s JISA, let’s explore seven key tips for getting your Junior ISA right at the beginning of the tax year: 

1. Put Your Plan in Action Today

12 months can seem like a long time to build your investments, but Vanguard analysis suggests that investing more money at the beginning of each tax year can lead to a far larger pot of money compared to waiting until the end. 

The data shows that adults who use their £20,000 ISA allowance in full on the first day of each new tax year, on April 6th, can see £56,000 more in savings after 25 years at an assumed annual return of 5.5% compared to someone who waits until April 5th each year. 

This means that Junior ISA savers can also see a significant difference in earnings by the time the child reaches adulthood. 

Putting your plan into action sooner rather than later doesn’t have to involve a significant outlay at the beginning of the tax year and instead could mean creating a direct debit designed to ensure you reach your full £9,000 allowance in a sustainable way. 

2. Compare the Market

If you’re one of the many savers who prefer the security of a Cash ISA as opposed to Stocks and Shares ISAs, then you should consider comparing the market for more attractive savings accounts as part of a financial spring clean. 

By auditing whether you could get better value elsewhere at competitive rates, you can squeeze more returns from your annual tax-free JISA allowance. Particularly if your child is still many years away from turning 18, finding opportunities to compound your savings early on can provide a springboard for compounded earnings later on. 

3. Incorporate Pound-Cost Averaging

If you’re planning to invest in your child’s JISA over the course of the year, you can help to balance risk by benefiting from pound-cost averaging. 

This strategy allows you to make your standard Stocks and Shares JISA contribution in a way that allows you to average out the cost of the shares you add. For example, some stages in the year will see your chosen stocks fall or rise in value, meaning you add fewer or more shares with your contributions. 

By investing the same amount each month, you’re more likely to add the investments at their average price, protecting you against the effects of market movements on your portfolio. 

On the other hand, if you invest a single lump sum, you may be making your purchase when prices are higher, which can eat into your long-term earning potential. 

4. Diversify Your JISA Portfolio

The most sustainable Stocks and Shares Junior ISAs are built on diversified investments that are more likely to drive portfolios higher over the course of your child’s early life. 

As we’ve seen plenty of times in the 21st Century, markets are prone to volatility and downturns that can see portfolios fall lower in the short term. Although history has shown that most investments recover over time, adding a more diverse range of stocks and industries to your child’s JISA can provide a level of resilience that stands the test of time. 

For added security, it’s even possible to hold both a Cash JISA and Stocks and Shares JISA as a means of growing your child’s nest egg more sustainably. However, the £9,00 annual tax-free allowance would need to be split between the two accounts. 

5. Get Friends and Family Involved

The great thing about holding a Junior ISA is that there are no limits to who can contribute to your child’s future. 

When a new tax year begins, it could be worth letting family and even friends know, offering them the opportunity to make a contribution. This approach could be especially useful if the child’s grandparents or uncles and aunts are wondering about how to contribute to their birthday or festive periods. 

6. Look to Incorporate Dividends

With tax-free dividend allowances falling to £500 for each tax year, it’s worth looking to ISAs and JISAs as a means of making the most of dividends as part of your tax-efficient stocks and shares portfolios. 

Moving your dividend stock holdings into your child’s Junior ISA means that they can benefit from payouts without having to pay tax on any earnings made, making it the most efficient way of holding stocks that are prone to paying dividends. 

7. Time Your Moments

While we’ve already touched on Vanguard data showing that getting in early each tax year with your JISA contributions can lead to higher returns, it’s still important to time the market accordingly. 

Although entering the market with investments at the right time can be a challenge even for the most experienced of investors, making yourself aware of the stocks and shares you want to add and waiting for moments when investments may seem undervalued can make all the difference in the long term. 

This approach is pretty time-intensive, but if you’re willing to wait longer to get your investments right, it can make a significant difference to the value of your child’s JISA. 

Preparing to Succeed

Making the most of your Junior ISA each tax year depends on your financial goals and the investments that you believe are best for your child. 

Whether you can begin saving lump sums quickly or prefer a more measured approach, there are plenty of ways to turn your JISA contributions into an efficient strategy that can pay off long into the future. 

By approaching each new tax year as a fresh start to make the most of your child’s savings, you can build a sustainable and rewarding nest egg for when they reach adulthood.