The Power of Starting Early: What a Junior ISA Could Be Worth by Your Child's 18th Birthday

Junior ISAs are a great way to give your child the best possible start to their adult life, but how much can their account actually be worth by the time they turn 18 years of age? Let’s take a deeper look at factors like compounding and how they can really help to grow nest eggs over long periods of time.

The Junior ISA, or JISA, for short, was introduced in 2011, so we’re yet to see the results of the first account holders who began saving from birth.

One of the biggest rules of either saving or investing using JISAs is that funds can’t be touched until your child turns 18 years old. This means that getting started early can leave you with a significant amount of time to build funds.

JISAs are also tax-efficient, meaning that you’ll pay no income tax or capital gains tax (CGT) on the money you save or invest. You’ll even be exempt from paying dividend tax as long as your dividend stocks are held within your child’s JISA.

Each tax year, you’ll have a £9,000 tax-free allowance to either save in a Junior Cash ISA or invest using a Junior Stocks and Shares ISA. Although we’re yet to see the first children build their investments over the full 18-year time frame, some youngsters have already built a substantial windfall through well-managed JISA investments.

Tomorrow’s Millionaires

According to a recent freedom of information request, the number of children with JISA pots worth more than £100,000 reached 2,250 in the 2023/24 tax year, a figure that’s more than doubled since the previous year.

Data also shows that those with £200,000 or more in their Junior ISA climbed to 90, representing a significant increase from the 50 who held this figure during the last tax year.

These substantial sums mean that there are now thousands of children in the UK who are well positioned to become millionaires in their 20s, should they continue to experience the same rate of growth throughout their JISA accounts over the years ahead.

To build a JISA pot worth more than £200,000 is some feat, particularly as JISA allowances were limited to between £3,600 and £4,368 from 2011 to 2020. This means that even if you’d begun using your full contribution allowance from 2011, you’ll have only been able to add £98,836 to your child’s fund.

The reason that so many children already have access to six-figure savings is because of compounding, which can help to really grow their JISA pots over time.

The Power of Compounding

Compounding is more common when it comes to investing using a Junior Stocks and Shares ISA, but it can also come into play as compound interest in a Junior Cash ISA.

It works when your investments grow in value, which then allows you to use your profits to open new investments, which will then also increase over time, meaning that for a long enough period, you can continue to roll your earnings into new investments to substantially grow your wealth.

Now, imagine the impact of compounding in a JISA over an 18-year time frame. Because funds can’t be withdrawn until your child becomes an adult, you have the potential to see the full effects of compounding in full swing.

How Much Could a JISA be Worth?

So, how high could a well-managed Junior Stocks and Shares ISA go if you were in a position to use the full £9,000 allowance over the next 18 years?

Over the past 70 years, the S&P 500 has averaged an annual return of 10.51%, so let’s assume that you’ve contributed £9,000 at the beginning of each tax year for 18 years, with this return remaining consistent throughout. This would mean that by the time your child becomes an adult, they’ll have a pot worth £477,201.03.

Of course, this is no guarantee that you’ll see a continuation of these averages if your child is born tomorrow and you have the resources to open an account and save the full £9,000 each year, but it provides a good indication based on historical trends.

It’s difficult to work out a similar figure for Junior Cash ISAs because interest rates in the UK had been historically low throughout the 2010s, contributing to an average rate of 1.92% over the past 18 years, which would leave savers with a total of £195,025.50. Hypothetically, if you were to save at the current base rate of 3.75%, your child’s pot would be worth £234,042.

Managing a JISA

The great thing about compounding is that it means it’s always a good idea to make contributions sooner rather than later, and this even applies when looking to make the most of your annual contributions.

If you’re in a position to, make your contributions to your child’s JISA at the beginning of the tax year rather than the end, because those extra few months of growth can really make a difference later down the line.

Junior ISAs are already helping to support children on their way to becoming millionaires by their 20s. Even if you’re not in a position to put significant amounts of money away each month, making timely contributions as and when you can could really make a difference later on, thanks to the benefits of compounded earnings.