What should I do with my child trust fund or junior ISA money?
If you’re thinking about using your child trust fund or junior ISA to build yourself a better future but you're struggling to find a clear goal, take a look at our list of exciting futures that are worth saving your money for.
Great reasons to put your child trust fund or junior ISA away for the future
At 18, it’s completely normal to be unsure about what you want your future to look like. You’re constantly being asked: Do you want to go to university? What job would you like? When are you going to move out? It’s no wonder most people experience decision fatigue at this age!
So, deciding what to do with your child savings could be another choice that you just don’t have time for right now.
Well, we have good news: you don’t need to decide.
In fact, if you’re not sure then the best thing to do is probably move it somewhere safe and put your decision off. The last thing you want to do is realise in a year what you could have done with it when it’s too late and all you have are the memories of that one week of fun when you blew it all!
Here are some ideas of the things you might decide to do in the future and how to get started. Think of your child trust fund or junior ISA as your first step towards the future you want, whatever that may look like.
If one of them looks tempting, make that your focus for now but leave yourself open to changing your goal. The main thing is to recognise the opportunities that your money gives you and keep your money safe until you need it.
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 own home, you own an asset that can increase in value over time. You’d also have your own place to live that’s free from the restrictions of renting - for example, not all landlords allow pets, and you might want to make changes such as painting the walls or putting up shelves.
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.
A lifetime ISA can give you a head start on building a house deposit, but if you’re not 100% sure you want to use your child trust fund or junior ISA money to buy a home, then it’s best you put it away somewhere else for now, such as in a stocks & shares ISA. That’s because if you withdraw money for anything else, the government will charge you a withdrawal fee (unless you’re 60 or over). You can always move it into a lifetime ISA later!
Moving out of the family home can be costly.
Even if you don’t think you 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 a moving van to take the things you already have.
By putting some or all of your child trust fund or junior ISA money away for now, you can give yourself some extra time to build up enough money to not only move out, but get comfortably settled in when you do.
Whether you dream of opening a coffee shop, launching a new app or even just being self-employed, you’ll need some money to start you off and your child trust fund or junior ISA can help you get there. With 5.5 million people in the UK currently owning a small business and 4.3 million being self-employed, striking out on your own doesn’t have to be a pipe dream, but it is something you need to prepare financially 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.
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 great use for your child trust fund or junior ISA money. You could even ask your 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.
Of course, we don’t mean right away - you’ll probably still have to work for a few years! But with the FIRE (Financial Independence, Retire Early) movement gaining traction recently, you’ve probably already thought that you might not 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.
If you’re thinking really long-term and want to get started on your retirement plan, you have a few options to hopefully grow your money.
You could give yourself some flexibility by putting it into a savings account or ISA, where it will hopefully grow in value. Or, if you’re committed to using the money after 60, you could consider a lifetime ISA, where the government will help you save for retirement. Just be mindful that there is a withdrawal fee if you do take your money out before you turn 60 (unless you’re using it to buy your first home).
There are also private pension schemes you could take advantage of, again though please be sure this is your plan before committing all your savings to a private pension as you might find your money is locked in so won’t be able to change your mind if you realise you need it before retirement.
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 and have some fun 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.
If you’d 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.
We know you know: university is expensive! But if the job you want requires a degree, or you’d like to study something in detail while you decide on your career, it might be a cost worth paying.
Even if you decide 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 on what you want to learn about.
Putting money away, even without a clear goal, just to stop yourself from spending recklessly is a responsible thing to do 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 especially later in life when you have more financial responsibilities and having that money there can 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 - whether it’s going back into education, taking a year to travel or putting a deposit down on your first home - your money will be there waiting for you, and your future self will thank you for it.
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, as some accounts come with benefits if you’re saving for certain goals.
Take lifetime ISAs, for example. The government tops up everything you invest in a lifetime ISA by 25% to help first-time buyers save a deposit or to 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 of free money 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 will mean you’re losing money that you’ve saved, not just paying back the bonus. So, don’t open a lifetime ISA unless you’re certain that you want to use the money to buy your first home (or you know you want to leave the money invested until you turn 60 in the distant future).
If you’re planning on keeping your money put away for five years or more, a stocks and shares ISA could be a good option for you. You can invest up to £20,000 each tax year and, while there is 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, which 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?
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.
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