Money expert explained many people start up the accounts for children – but don’t realise it’s locked in for 18 years – and also there are better options
Financial expert Martin Lewis has issued a warning regarding a particular type of ISA — and advised prospective investors to place their funds elsewhere. Mr Lewis, in a recent video on YouTube, explained the concern relates to Junior ISAs and holds particular significance for parents and grandparents.
Numerous people establish these accounts at birth or during early childhood to accumulate savings for youngsters — yet he highlighted there are drawbacks — not least the fact that the funds remain inaccessible until their 18th birthday. A Junior Cash ISA is a long-term, tax-free savings account established for a child in the UK.
It is available for children under 18 residing in the UK. Parents or guardians with parental responsibility are able to open one, while 16- and 17-year-olds can establish their own.
The advantage lies in the ability to save an additional £9,000 for the 2026/27 tax year. This allowance is separate from an individual’s adult ISA limit.
Parents, grandparents, family members and friends are all able to contribute funds into the account, provided the annual limit isn’t surpassed. Mr Lewis explained: “I would suggest most people opening a junior ISA should be looking at investing, not saving. And the reason I say that is because the golden rule about investing is that it should be money that you’re locking away for a long time, and it should be money that you don’t need. Well, with a junior ISA, the money is locked away until they are 18. So if you have a new grandchild, you’re locking it away for 18 years-so that’s tick one: investing, and not needing the money. Since they can’t access it, they don’t need it.”
The ITV and BBC star suggested it would be ‘massively’ surpassed by an alternative investment approach. He explained: “On the balance of probabilities, if you put it in a broad spread of investments-something like a global tracker fund that tracks 1,400 or so big companies across the world for their performance-it will massively outperform savings. So you might want to have a look, especially as a grandparent, because investment over the long run will generally outperform savings, and you are putting this in for at least 18 years for their future. While you could put it in a cash ISA, I would look at investing it for them; you never know, they might end up with a really big windfall.”
Mr Lewis also revealed that he had been approached by members of the public while out asking about investments and where to place their money.
He said: “I actually got stopped in the street by someone who said, ‘My dad’s been putting money in the S&P 500-which is the American stock market index-for the last 10 years, and he’s been making me put some of my money there too. He says it’s good for the future, and to remember it when I’m 50. Is he right?’ I told him to look at his balance, and his balance was just massively more than they had put in. Yes, his dad got it right.
“We are too risk-averse in this country. If you can lock it away and you don’t need it-and you’ve generally got your own cash emergency fund saved up elsewhere-then you should be looking at investing. Also, when they’re 17, they’re going to need it to go to Zante, mate, if you know what I mean! Well, they can’t get it until they are 18, thankfully, so it is protected. But remember, when it comes to investing, I’m not talking about putting it into a single share; I’m talking about a big basket, spreading your risk across thousands of shares so you get the average performance of all of them.”
Research from the Investment Association and Opinium found that adults holding Cash ISAs are almost twice as likely to open a Junior Cash ISA than a Junior Stocks and Shares ISA (17% vs. 9%) for their children which is said meansmany are missing out on the long-term growth a Junior Stocks & Shares ISA could offer.
It said: “Whilst money in a Junior ISA belongs to the child, they can’t withdraw it until they turn 18 except under exceptional circumstances. Cash ISAs can be helpful for those saving for immediate needs but investing on behalf of your child into a Junior Stocks & Shares ISA can offer stronger returns over this long-term period, helping to grow their wealth and protecting future savings from the detrimental impact of inflation.”
Chris Cummings, CEO of the Investment Association and Chair of the Just Finance Foundation, said: “Making use of the tax-free savings available through a Junior ISA is a great way to set your child up for later life, whether that’s funding education or training, getting a foot on the property ladder or starting a family of their own.
“Many parents are already taking advantage of Junior ISAs, but we would like to see more benefit from long-term investment through the Junior Stocks and Shares ISA. That’s why we’re calling on the government to introduce more effective financial education throughout life so that concepts including the power of compound growth and inflation risk are better understood, and families are set up to make informed financial decisions that benefit their futures.”
