What should I do with my child trust fund or junior ISA money?

Written by Ines Pena

Whatever your future goal is, the money in your child trust fund or junior ISA could help you reach it. But what if you can't decide what you want to do?

You might be unsure of how you want to use your child trust fund or junior ISA. That's totally understandable - it's a big decision.

To help you out we've explored some common financial goals that are worth saving for. These include buying your own home, buying a car and even starting your own business.

Great reasons to put your child trust fund or junior ISA money away for the future

At 18, it’s completely normal to be unsure about what you want your future to look like. Especially with all the choices available to you!

So, deciding what to do with your child savings could be another overwhelming decision to deal with.

Think of your child trust fund or junior ISA as your first step towards the future you want. Whatever that may look like.

If you have a financial goal in mind, make that your focus for now. But leave yourself open to changing it up. The main thing is to recognise the opportunities that your money gives you. Then keep that money locked away until you need it.

What can you do with child trust fund or junior ISA savings?

Buy your first home

Does the idea of a key-dangling selfie outside your own front door appeal to you?

Being able to buy your first home early in life is a great opportunity and not just financially.

When you own your home, you own an asset that can increase in value over time. You’ll also have your own place to live that’s free from the restrictions of renting. Great if you want to have a pet, or you want to put your own stamp on your home.

When you buy your first home you’ll need to put down a deposit, which can take a long time to save up for. The money in your child savings account can give you a head start on building that deposit.

Give your deposit fund a boost

A lifetime ISA can give you a head start on building a house deposit. This is because of the generous 25% bonus you get on top of the money you put in. If you pay in the maximum amount of £4,000 each tax year, that's £1,000 extra money towards your first home. Gamechanger!

But if you’re not 100% sure you want to use your money to buy a home, it’s best you put it away somewhere else for now. That’s because if you withdraw money for anything other than your first home, the government will charge you a withdrawal fee (unless you’re aged 60 or over).

A stocks and shares ISA might be a better option if you're undecided about wanting to own a home or keeping the money locked away until you're 60. You can always move your money into a lifetime ISA later, when you're more sure!

Move out

Moving out of the family home can be expensive, with many costs to consider.

What if you don't want to buy a house anytime soon and you’re happy to rent for the time being? You’ll still need a fairly hefty amount to cover your tenancy deposit, any furniture you might need and moving costs.

By putting some or all of your child trust fund or junior ISA money away for now, you can give yourself extra time to build up enough money. This will help you to not only move out, but also get comfortably settled in when you do.

Start your own business

Dreaming of opening a coffee shop, launching a new app or even just being able to work for yourself?

You’ll need some money to start you off, and your child trust fund or junior ISA could help you get there. With around 4.4 million people currently self-employed in the UK, striking out on your own doesn’t have to be a pipe dream. But it is something you need to financially prepare for.

Even if you don’t have a full plan in mind just yet, you can use the money from your child savings account to kickstart your business fund. That way, while you get your ideas together, you’ll have the money ready to go.

Buy your dream car

Owning a car can open up a whole world of opportunities, from being able to live somewhere cheaper to visiting loved ones more often.

If owning your dream car is on your future-plan list, this could be a great use for your child trust fund or junior ISA money. You could even ask a parent if you could drive their car for the time being, so you don’t have to spend money on a car you don’t love just to get by.

Retire early

Of course, we don’t mean right away - you’ll probably still have to work for at least a few years! Inspired by the FIRE (Financial Independence, Retire Early) movement? Then you might've already decided you don't want to work until the government retirement age.

By having access to a child trust fund or a junior ISA, you’ve already gained a head start to retiring early.

Think long-term

If you want to get started on your retirement plan, you have some options to hopefully grow your money. For example, you could put it into an ISA or savings account, where it will hopefully grow in value.

Or, if you’re committed to using the money after 60, you could consider using a lifetime ISA to help you save extra for retirement.

A word of warning though. Using a lifetime ISA instead of a pension may not be a good idea if you are employed or a higher rate taxpayer. This is because you may miss out on employer contributions to your pension, or tax relief at 40%. These could both give you more than the 25% government bonus.

Of course, you can have both a LISA and a pension – if you have any spare income, a lifetime ISA is one way to top-up your retirement savings. You can only pay into a lifetime ISA (and receive the bonus) until the age of 50 though, so bear that in mind.

Also be mindful that there's a withdrawal fee if you do take your money out before you turn 60 (unless you’re using it to buy your first home).

Go on your dream trip

Many people use their child trust fund or junior ISA money to travel before starting work or university. It’s an opportunity to see the world at a time in your life when you have few commitments.

But if your child savings aren’t going to stretch to the trip you want just yet, they could at least be the start of a dream trip savings pot.

The more money you’re able to save, the more you’ll be able to get out of your travels. You could go away for longer, stay in better accommodation or even visit more places.

Rather not wait? You could build that pot faster by spending six months of your gap year working, leaving you with six months to travel.

Go to university or learn new skills

We know you know: university is expensive! But if the job you want requires a degree, it might be a cost worth paying.

Even if you’ve had enough of formal education for now, there’s nothing stopping you from going back into education later in life.

Putting your child trust fund or junior ISA money aside for future training/education means you can change your mind in the future.

Let your money grow while you decide

Putting money away, even without a clear goal, is a responsible thing to do. It could help curb mindless spending and could help you get out of a tight spot in the future.

An emergency fund, for example, is something everyone should have, even if right now you might think you don’t need one. Things can happen unexpectedly and having that money there could help protect you from getting into debt.

If you’re still wondering what to do with your child trust fund or junior ISA money, you can use it to start a “future goals” fund and keep adding money to it. That way, when you do decide on what you want to do, your money will be there waiting for you.

Your future self will thank you!

Ok, I’ve chosen my goal. Now how do I grow my money and reach it?

When saving or investing for a long-term goal, it’s important to be aware of all the options available to you. This is because some accounts come with benefits if you’re saving for certain goals.

Using a lifetime ISA to save for your first home

As we mentioned earlier, with lifetime ISAs the government tops up everything you invest by 25%. This can help first-time buyers save a deposit quicker, or help anyone save for later life. You can put in up to £4,000 in a lifetime ISA each tax year, meaning you could get up to an extra £1,000 a year!

The catch is that you must use it to buy a first home or leave it where it is until you’re 60, otherwise you’ll pay a 25% penalty fee on everything you take out.

That fee can mean you lose money that you’ve put in as well as any bonus. This means you should avoid opening a lifetime ISA unless you’re certain you want to use the money to buy your first home (or you want to leave the money until you turn 60).

Using a stocks and share ISA to save for the future

If you’re not sure a lifetime ISA is for you, and you're planning to keep your money locked away for at least five years, a stocks and shares ISA could be a good option. You can invest up to £20,000 each tax year and, while there's no government bonus, there also isn’t a penalty fee. So you can withdraw however much you want at any time.

Both lifetime ISAs and ISAs are available as cash and stocks and shares products. This will suit different goals and different people, so it’s important you choose the right one for you.

Find out more: Is it better to save or invest your money?

Lifetime ISA

If you want to save for your first home or for life after 60, our Lifetime ISA could help. You'll gain a 25% boost from the government (up to £1,000 per tax year) on top of the money you put in, as well as any potential stocks and shares returns.

Stocks and Shares ISA

With one, simple annual management charge of 1.1%, our Stocks and Shares ISA could be a good option if you're looking to invest over the long-term.

Our Lifetime ISA and Stocks and Shares ISA invest in stocks and shares. This means they have good long-term growth potential, but the value of your investments could go down as well as up so you could end up with less money than you've put in.