As Premium Bonds approach their 70th anniversary and Junior ISAs mark 15 years since launch, cash remains the preferred option for many parents putting money aside for their children, according to new research from Fidelity International.
The study found that 86% of parents who save or invest for their children use some form of cash saving. Among those putting money aside, 51% use an ordinary cash savings account, 43% use a Cash Junior ISA and 15% use Premium Bonds. By comparison, 20% use a Stocks & Shares Junior ISA.
Data obtained by Fidelity from NS&I also shows around 850,000 children under the age of 16 hold Premium Bonds.
To illustrate the impact of different approaches over time, Fidelity compared the outcome of £1,000 set aside when Junior ISAs launched in November 2011.
According to its analysis, £1,000 invested through a global tracker in a Junior ISA would be worth £6,619 today, compared with £1,345 if held in Premium Bonds over the same period.
Jemma Slingo, pensions and investment specialist at Fidelity International, said: “Premium Bonds have an enduring appeal for families. They offer security and the possibility of a tax-free prize, so it is easy to understand why parents and grandparents have used them to put money aside for children for generations.
“But when you are saving for someone who may not need the money for 10, 15 or even 18 years, being too cautious can carry a cost of its own. Inflation can eat away at spending power, while staying out of markets means giving up the potential for long-term growth.”
The research also suggests many parents remain more comfortable with saving than investing. When asked what they would do with £100 earmarked for their child’s future, 61% said they would save it, while 17% said they would invest it.
Views on investing also varied. Just 39% of parents said they believe investing delivers better long-term returns than cash savings, while 25% believed cash performs better. A further 15% thought the two performed similarly and 21% were unsure.
The study found some parents would approach things differently with hindsight. Nearly a third (32%) said they wished they had started saving or investing for their children earlier, while 21% wished they had learned more about investing. A further 16% said they wished they had invested rather than saved in cash.
There were also differences between age groups. Among parents aged 18 to 34 who put money aside for their children, 29% use a Stocks & Shares Junior ISA, compared with 15% of those aged between 35 and 54.
Slingo said: “Parents do not have to make an all-or-nothing choice between cash and investing. The important thing is to think about when the money will be needed. Cash can play an important role for money needed sooner, while investing may give money that can stay untouched for many years more opportunity to grow.
“It is encouraging that younger parents appear more likely to use a Stocks & Shares Junior ISA, but cash remains the default for many families. Children have something adult investors often wish they had more of: time. For long-term money, making use of that time could make a meaningful difference to the financial head start parents are able to give them.”
Main image: piggy bank, money, save, children, brano-heYdDdq0cbE-unsplash
